What is the 'Top Line'
The top line is a reference to the gross sales or revenue of a company. It is called the top line because it the first line, located at the top of a company's income statement, and is most often reserved for the reporting of gross sales or revenue. A company that increases its revenue is said to be growing its top line or generating top-line growth.
BREAKING DOWN 'Top Line'The top line is a record of a company’s income or revenue earnings that reflects the value of goods sold to consumers within the statement period. It is placed at the top of an income statement, as each subsequent line item references an expense or loss that must be deducted from the gross earnings featured on the top line.
Expenses can include any payments made in order to support the production of goods or rendering of a service. Capital losses incurred through depreciation can also be deducted. Common expenses include, but are not limited to, the cost of materials required to manufacture the goods that were sold, as well as any operating expenses. Applicable taxes are also deducted from this running total.
The Top Line Versus the Bottom Line
The top line is a comparison point to the amount referred to as the bottom line. The bottom line reflects the net income, which is often listed as the last, or bottom, line on a company's income statement. The bottom line reflects what remains once all of the necessary expenses have been deducted from the top line, and reflects the amount of profit that was generated during the statement period.
Top Line Growth
Top line growth refers to an increase in the gross revenue brought into a company, and does not guarantee an increase in profit. Growth in this area may lead to growth in the bottom line only if it is not offset by increased expenses. When top line growth is solely related to increased sales due to increased production, the increased costs of production must be deducted from the top line in order to determine the new bottom line.
Identifying Financial Statements
The income statement may also be referred to as a statement of revenue and expense, or a profit and loss statement. The statements are separate from other financial statements generated by a company, such as balance sheets or cash flow statements. Balance sheets are financial documents that track a company’s assets and liabilities, including information regarding stockholder equity, while cash flow statements track operating, investing and financing activities.