Two of the most
critical lines on the income statement for a company are the top line and
bottom line. Signs of any changes from year to year are being paid attention
from investors and analysts.
A company’s revenues
or gross sales are called the top line. The company is experiencing an increase
in total sales or taxes when it has top-line growth.
The bottom figure, or
the company’s net income, on a company’s income statement, is called the bottom
Expenses have been
deducted from revenues, after all. The bottom line is a company’s income.
General and administrative costs, interest charges paid on loans, and income
taxes are included in the expenses. Net earnings or net profits are also a
company’s bottom line.
When both top and
bottom lines grow, the company is said to be profitable. However, more
established companies might have lower sales or revenue for a reporting period
but are still able to improve their bottom line through expenses reduction.
During periods of sluggish economic activity or recession, cost-cutting
measures are standard.
determine whether a company’s management is growing their sales and revenue and
managing expenses efficiently when they know the factors that impact both the
top and bottom lines.
To increase the bottom
line, management can enact strategies. The topliners should filter down and
boost the bottom line, for the starters to increase in revenue. By lowering
sales returns through product improvement, increasing production, expanding
product lines, or increasing prices, this can be done. Other income, such as
interest income, investment income, co-location fees, or rental, and the sale
of property, also increase the bottom line.
Through the reduction
of expenses, a company can increase its bottom line. Using different input
goods or with a more efficient method, a company’s products could be produced.
There are ways to improve the bottom line, such as operating out of less
expensive facilities, decreasing wages and benefits, utilizing tax benefits,
and limiting the cost of capital. A boost to the company’s bottom line finding
a new supplier for basic materials that appeared in a cost savings of million
dollars, is an example. Conversely, an indication the company has suffered a
dip in income or a surge in expenses if a company’s bottom line shows a curb
from one period to the next.
On the income
statement, the bottom line of a company does not carry over from one period to
the next from an accounting standpoint. All revenue and expense accounts are
included in closing all temporary accounts, accounting entries are performed.
The bottom line is transferred to maintained earnings upon the closing of these
Net income or the
bottom-line figure can be sent in several different ways by a company’s
executives. To issue payments to shareholders in the form of dividends as an
incentive to maintain ownership, the bottom-line can be used.
repurchase stock and retire equity, the bottom line can be used. Or a company
may keep all earnings reported on the bottom-line to utilize in product
development, or other means of improving the company.