What is Annual Income?
Annual Income Definition
The term Gross Annual Income, or GAI, is the total income earned by an individual through their salary, wages, interest, and dividends within a given tax year.
Annual Income Meaning
Annual income may be used to either mean the total annual revenues minus total annual cost of goods sold for a company or the total annual salary, wages, interest, and dividends received by an individual within the tax-year.
Gross Annual income for companies is also known as Gross Profit and for individuals may be known as top-line income.
Annual Income Example
Any analysis of earnings begins with GAI.
In analyzing a company’s earnings GAI will often be disaggregated into Gross Margin, which is GAI as a percentage of total revenue earned.
This figure is then useful for comparing against other companies with similar Market Capitalizations or similar industries.
For example, the performance of a company which makes $300 million in GAI and a company of smaller size which makes $30 million GAI in the same industry can be compared when you further derive the Gross Margin.
If the former has a margin of 10% whereas the latter has a margin 25%, investors may say the smaller company is relatively outperforming the former.
How to find a Company's Annual Income
For public companies, Gross Annual Income is presented in the first three lines of the income statement on their Form 10-k.
It is important to remember that Gross Annual Income is calculated over a company’s fiscal year which may be different than the calendar year.
Annual Income Analysis
If a company plans to experience significant costs of goods sold or significant revenues at the end of the year, they may be motivated to defer either until the beginning of the next year to control their GAI thereby managing investor expectations.
For this reason, financial analysts will often look at subsequent quarterly reporting to determine if the company is shifting significant transactions.