Investing Portfolio Management What Is Net Income Applicable to Common Shares? How to Calculate Net Income Applicable to Common Shares By Joshua Kennon Joshua Kennon Twitter Website Joshua Kennon is an expert on investing, assets and markets, and retirement planning. He is the managing director and co-founder of Kennon-Green & Co., an asset management firm. learn about our editorial policies Updated on March 31, 2022 Reviewed by Anthony Battle Reviewed by Anthony Battle Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant® designation for advanced financial planning, the Chartered Life Underwriter® designation for advanced insurance specialization, the Accredited Financial Counselor® for Financial Counseling and both the Retirement Income Certified Professional®, and Certified Retirement Counselor designations for advance retirement planning. learn about our financial review board Share Tweet Pin Email Definition Net income applicable to common shares is the income that could be given to shareholders after taxes, non-controlling interest, and dividends on preferred stock are deducted. Photo: Photographer is my life/Getty Images Net income applicable to common shares is the income that could be given to shareholders after taxes, non-controlling interest, and dividends on preferred stock are deducted. Definition and Examples of Net Income Applicable to Common Shares Net income applicable to common shares is a figure on an organization's income statement. It tells investors how much income is left over that could be distributed to common shareholders. The figure is also called earnings available for common shares. It's important to note that there is no gaurantee that a company will distribute all or some of the available earnings. There might be other financial circumstances such as expansions or other large investments a firm might need to make that require leftover capital. The corporation might make it a policy not to pay dividends. Income statements will not always make it clear how much income is available. In that case, you could check the company's annual filing with the Securities and Exchange Commission, called a "10-K." For example, Ford Motor Company lists net income available for common and Class B shares in the form's notes—there was $17.9 billion available at the end of 2021. Note The figure is also the starting point for calculating basic earnings per share and diluted earnings per share. How Do You Calculate Net Income Applicable to Common Shares? As shown in the Ford Motor Company example, you can use the value the company publishes in its annual financial report. If the income statement doesn't list the net income available for common, you can use the company's net income and subtract preferred dividends. For instance, say you owned a business and issued preferred and common stocks. Assume that one year you generated $3 million in revenues and had $1 million in total expenses. You paid $500,000 to your preferred stockholders. In this case, you have $1.5 million in earnings available for common shareholders. What It Means for Individual Investors For an investor, net income available to common shares is a chance to receive distributions or dividends if the company issues them. However, companies are not required to pay dividends—unless the stocks are dividend-paying shares. Some corporations do it when they can; some don't pay them at all. Others, like Coca-Cola, always pay quarterly dividends. Note You may find it helpful to know how mature the company is when looking for investments that might generate dividends. A young, growing company with a significant income for common shareholders is more likely to reinvest in itself. A more mature company might distribute earnings. Net income available to common doesn't always mean an excess of cash or capital available for shareholders. For example, a business may have a high income available to common shares. However, if reported earnings for the year were higher than the amount of cash reserves for the year, the company might choose to place the capital into its cash accounts for expenses that require cash. There are cases where shareholders might be better served. A company's management could use funds to reduce risk by reserving them for other purposes rather than pursuing growth in net income. Key Takeaways The net income applicable to common shares on an income statement is the income that could be given to common stockholders. Net income applicable to common shares is the amount of capital left after subtracting expenses, taxes, and dividends to preferred shares from earnings for the year. Businesses can choose to use this capital or distribute it to common shareholders. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. Ford Motor Company. "Form 10-K For the Fiscal Year Ended December 31, 2021," Pages 110, 129. The Coca-Cola Company. "When Does the Company Pay Dividends?"