What's the difference between bottom-line and top-line growth?

By Investopedia Staff AAA
A:

A company's bottom line is its net income, or the "bottom" figure on a company's income statement.

More specifically, the bottom line is a company's income after all expenses have been deducted from revenues. These expenses include interest charges paid on loans, general and administrative costs and income taxes. A company's bottom line can also be referred to as net earnings or net profits.

The top line refers to a company's gross sales or revenues. Therefore, when people comment on a company's "top-line growth", they are making reference to an increase in gross sales or revenues.

For example, a company would be experiencing top-line growth if a new advertising campaign caused a 15% increase in sales for its widgets, which resulted in an increase of $2 million to the revenue. Bottom-line growth would occur in a situation where a company found a new supplier for raw materials that results in a cost savings of $4 million.

Both these figures are useful in determining the financial strength of a company, but they are not interchangeable. Bottom line describes how efficient a company is with its spending and operating costs and how effectively it has been controlling total costs. Top line, on the other hand, only indicates how effective a company is at generating sales and does not take into consideration operating efficiencies which could have a dramatic impact on the bottom line.

However, this is not to say that a company cannot experience both top-line and bottom-line growth at the same time. This can be achieved if a company earns more revenue (top line) and reduces its operating costs (bottom line).

(To learn more, see Understanding The Income Statement.)

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