Basics of Stock Market - Beginner

Top Line vs. Bottom Line

Top Line Growth

The company's top line refers to its growth sales or revenue. When we use the term "top line growth", it means the company's indication of an increase in gross sales or revenue. The top line of the income statement shows the company's revenue or sales figure. Companies that are focusing on their top lines often mean they are trying to increase sales or revenue.

Bottom line growth

Net profit is the bottom line of a company. It appears at the bottom end of the income statement. This figure is calculated after subtracting all expenses from the company’s revenue.

It is possible to say that a company is improving its bottom line if it is generating more sales while cutting its costs. If the company can find a new supplier of input material, it can help with its bottom line. This will result in cost savings.

You have two options to increase your bottom line:

  • Revenue growth or top-line growth:
  • Reduce costs to increase efficiency

What is the importance of top and bottom line growth in a company?

For determining the financial health of a company, it is important to have both top and bottom line growth metrics. The company's ability to generate sales is the top line. However, it doesn't include operating efficiencies. The bottom line, on the other hand, shows how efficient the company can manage its operational expenses and other expenses. The bottom line also shows how well the company manages total costs.

A company can have both top and bottom lines simultaneously by increasing its revenue or reducing its operational expenses, which is not possible.

The key takeaways

  • Both the top and bottom line values can be used to determine the company's financial health. However, they are not interchangeable
  • The bottom line shows how efficient a company's spending and management of its operating expenses
  • The top line is a measure of how efficient a company generates sales and revenue. It does not include operating efficiency. This can have a significant impact on the bottom line.

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