What Is the Top Line?
The top line is a reference to gross figures reported by a company, such as sales or revenue. It is called the top line because it is displayed at the top of a company's income statement, and is reserved for the reporting of gross sales or revenue. A company that increases its revenue or sales is said to be generating top-line growth.
Understanding Top Line
The top line is a record of a company’s revenue that reflects the full sales price of goods or services sold to consumers within the statement period. It is placed at the top of the income statement, as subsequent line items reference an expense or loss that must be deducted from the gross figure. Expenses can include any payments made in order to support the production of goods or rendering of a service. Capital losses incurred through the sale of a capital asset at a loss 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.
Top Line vs. Bottom Line
The top line is a gross figure of all revenue earned in the statement period, while the bottom line refers to the net figure after taking into account the costs of earning the revenue. 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 refers to an increase in the gross revenue brought into a company, and does not necessarily guarantee an increase in profit. Growth in revenue 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.