Write the difference between Net operating income and net income.

The major differences between net operating income and net income are as follows −

Net operating income

• No relevance in capital structure.

• Degree of leverage is irrelevant to cost of capital (assumes).

• It has constant cost of capital.

• Equity value is residual.

• Changes perception of investor with increase in debt.

Net income

• Relevance in capital structure.

• Change in degree of leverage will change WACC (assumes).

• No taxes.

• Cost of debt is less than cost of equity.

• Change in debt will not change perception of investors.

Mandalika

Published on 28-Sep-2020 11:21:54

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