Bottom-Line Growth vs. Top-Line Growth: What’s the Difference?

It’s not enough to just report on the final top-line and bottom-line growth numbers. You have to drill into the “why” behind them. And the way to get to these “whys” is to understand where each line begins, and how to leverage each one to make more informed, strategic decisions around the business.

The top line refers to a company’s revenues or gross sales. Therefore, when a company has “top-line growth,” the company is experiencing an increase in gross sales or revenues. The bottom line is a company’s net income, or the “bottom” figure on a company’s income statement.

TOP LINE vs BOTTOM LINE

Bottom-line growth vs. top-line growth

Both the bottom line and top line are useful figures when calculating the financial success of a business, but it is important to remember that when a top line grows, it does not necessarily mean that the bottom line will grow as well.

The top line merely refers to a companys total sales or revenue without taking costs and expenses into account. Therefore, top-line figures can only help analysts understand how good a company is at generating sales. The bottom line, however, takes different costs and expenses into account and can give analysts a more complete picture of how operationally efficient a company was during a specific time. The most profitable companies experience simultaneous top-line and bottom-line growth.

Bottom-line growth

Companies can grow their bottom lines by reducing their expenses substantially. They can do so by using more cost-efficient operating methods, such as sourcing less expensive materials for production or operating out of a less costly facility. Companies can also increase their bottom lines by taking advantage of applicable tax benefits.

Bottom-line growth is not necessarily dependent on top-line growth. One way to increase the bottom line without increasing the top line is through the growth of other income such as passive investment income, interest revenue or asset gains. For example, if your company generates the same amount of sales revenue each year—meaning your top line is stable—you can still increase your bottom line, or overall profit, by decreasing your costs and expenses.

Bottom lines, like top lines, can also decrease. If that happens, a decrease in net profit is not dependent on a decrease in sales. A bottom line may suffer a decrease from non-income changes, like a rise in expenses.

Top-line growth

What is the top line?

Net income is typically the last figure listed on an income statement, which is where the bottom line gets its nickname. Companies typically aim to increase their bottom line as well, as this can indicate their efficiency in a variety of areas, including sales, operations and reducing expenses.

Bottom line vs. top line: Formula and example calculation

When trying to understand the difference between the top line and the bottom line of your income statement, you can use the following formula:

Net income = (gross sales – total expenses) + other revenue

In this case, the gross sales is the top line, and the net income is the bottom line. Though most income statements are a little more complicated than the above formula—with many costs and non-core operating income sources to consider—this basic calculation can help stakeholders and investors alike analyze a companys financial success. Many people assume that top-line growth accurately indicates a companys financial value, but a companys success is much more dependent on bottom-line growth.

Example: If you work for a software company that has generated a total sales revenue of $300 million, that figure would be your top line. To find your bottom line, you have to deduct costs and expenses from your total revenue. So, if your operating costs total $270 million, including factors like labor, materials, facilities, interest and taxes, and you dont generate revenue from sources outside of your core operations, your bottom line would amount to $30 million in net income.

In this example, to increase your bottom line, you may want to decrease the amount you spend on expenses, increase the amount of sales revenue your company generates, increase the amount of revenue earned through non-core operations or all of the above. For instance, if you increase your total sales revenue to $370 million while decreasing your operating costs to $210 million and then further increase your revenue from non-core operations by $20 million, your net income (or bottom line) would come out to $180 million.

Other important line items on an income statement

As stated above, income statements are more complex than their top and bottom lines—they include a variety of other line items that you need to take into account to understand a companys financial standing. Here are a few other important line items included on income statements that are important to know when discussing profit:

EBITDA

Gross profit

Operating profit or loss

This line item, located in the operating expenses section, indicates the amount of money generated or lost after operating deductions are made. This figure reflects the companys pre-tax earnings and is calculated by subtracting operating costs from the gross profit.

Total other income

This line item reflects the total amount of income earned through non-core operations, such as interest or asset gains.

FAQ

What does bottom line mean?

The bottom line refers to a company’s earnings, profit, net income, or earnings per share (EPS). The reference to the bottom line describes the relative location of the net income figure on a company’s income statement.

Is Ebitda top line or bottom line?

In contrast, when you hear about ‘bottom line‘, it refers to the net earnings or profit of the company, most often what is known as EBITDA, earnings before interest, taxes, depreciation, and amortization.

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