Top line and bottom line are two of the most important lines on the income statement of the company. Investors and analysts pay special attention to signs of change from quarter to quarter and year to year.
The upper line refers to a company’s revenue or gross revenue. Therefore, when the company “top-line growth,” the company observed an increase in gross sales or revenues.
The essence is the net profit or the “bottom” figure on the income of the company.
More specifically, the essence of the company’s income after all expenses have been deducted from revenues. These costs include interest paid on loans, General and administrative expenses and income tax. The company’s results of operations can also be attributed to the net profit or net profit.
Example – Apple.
Apple. (Shares aapl) posted the top online company in the amount of $228.57 billion at the end of the accounting year to 30 September 2017. The amount of revenue represented 6.7% of top-line growth from the same period a year earlier.
Apple has published the final number of $48.35 billion in the same period, which is 5.8% more in their bottom line from 2016.
A company like Apple could increase revenues through new product launch as a new iPhone, a new service or a new advertising campaign that will increase sales, which increased sales volume by 6.7% year-on-year. Bottom line growth can occur from increased revenues, but also expenses to keep under control.
Analysis Of The Top And Bottom Lines
The user can adopt strategies to increase profits. For starters, an increase in income or upper line have to filter and increase profits. This can be done by increasing production, decreasing returns sales by improving product quality, expanding product lines or increase prices. Other income such as investment income, interest income, lease or co-location fees and the sale of property or equipment to increase profits.
The company can increase its profits by reducing costs. The company’s products can be produced using different input products or more efficient methods. Lower wages and benefits, operating out less expensive facilities, the use of tax benefits, and limiting cost of capital, ways to increase profits. For example, in a situation when the company found new suppliers that resulted in savings of millions of dollars would give a boost to the bottom line of the company. Conversely, if the company’s results of operations shows a decrease from one period to the next, it shows the company suffered falling incomes or rising costs.
From the point of view of accounting, the bottom line of the company is not transferred from one period to the next income. Accounting Postings are made to close all temporary accounts including all accounts of income and expenditure. After closing these accounts, the net balance or the result is transferred to retained earnings.
Bottom line, figure, or net income, can be spent in a number of different ways from the leaders of the enterprise. The bottom line can be used to make payments to shareholders in the form of dividends as an incentive to maintain the property. In addition, the bottom row can be used for the purchase of shares and retirement of equity. Or, perhaps the company can keep all income is reported on the bottom line, to use in product development, expansion of the area or other means of improving the company.
Both top line and bottom line figures are useful in determining the financial stability of the enterprise, but they are not interchangeable. The bottom line describes how effectively the company works with its management costs and operating expenses. From the top, on the other hand, only shows how effectively the Company is to increase sales and revenue and does not take into account efficiency, which can have a huge impact on the bottom line.
However, this does not mean that the company can not feel like on the top line and bottom line growth at the same time. This can be achieved if the company earns more revenue (top line) and reduces its operating costs (bottom line).
The most profitable companies tend to grow their top and bottom lines. However, more established companies may have a TV with sales or profit for a given accounting period, but are still able to boost their bottom line by reducing costs. Measures to reduce costs are common periods of sluggish economic activity or recession. Knowing the factors that affect the upper and lower lines can help investors determine whether the management of the company sales growth, revenues and control expenses effectively.
To learn more, see understanding the income statement.