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.)

RELATED FAQS
  1. How is the bottom line increased or decreased?

    The bottom line is a common term for a company's net profit because this figure is found at the bottom of the income statement. ... Read Full Answer >>
  2. What items are considered liquid assets?

    A liquid asset is cash on hand or an asset that can be readily converted to cash. An asset that can readily be converted ... Read Full Answer >>
  3. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  4. How can working capital affect a company's finances?

    Working capital, or total current assets minus total current liabilities, can affect a company's longer-term investment effectiveness ... Read Full Answer >>
  5. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  6. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
Related Articles
  1. Stock Analysis

    The Top 5 Retail Stocks for 2016 (AMZN, EXPR)

    Discover the top five retail stocks for 2016, including two big household names and one small-cap apparel stock currently selling for a song.
  2. Economics

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  3. Fundamental Analysis

    5 Basic Financial Ratios And What They Reveal

    Understanding financial ratios can help investors pick strong stocks and build wealth. Here are five to know.
  4. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  5. Stock Analysis

    Understanding Chipotle's Financials (CMG)

    Learn about Chipotle Mexican Grill and its financial statements, including metrics such as comparable sales, operating margin and returns.
  6. Investing Basics

    How To Decode A Company’s Earnings Reports

    Earnings reports tell investors how a publicly-traded company is performing, but aren’t always easy to decipher.
  7. Economics

    The Basics Of Business Forecasting

    Whether business forecasts pertain to finances, growth, or raw materials, it’s important to remember that a forecast is little more than an informed guess.
  8. Investing Basics

    Analyzing A Bank's Financial Statement

    Investors should analyze a bank’s interest rate risk and credit risk when analyzing its financial statement.
  9. Investing Basics

    Analyze Cash Flow The Easy Way

    Cash flow statements reveal how a company spends its money and where that money comes from.
  10. Term

    What Are Quick Assets?

    A company’s quick assets can be easily converted into cash.
RELATED TERMS
  1. Short-Term Debt

    An account shown in the current liabilities portion of a company's ...
  2. Audit

    An unbiased examination and evaluation of the financial statements ...
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and ...
  4. Discounted Payback Period

    A capital budgeting procedure used to determine the profitability ...
  5. Selling, General & Administrative Expense - SG&A

    Reported on the income statement, it is the sum of all direct ...
  6. Current Liabilities

    A company's debts or obligations that are due within one year. ...
Hot Definitions
  1. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  2. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  3. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  4. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  5. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center