Terms Of The Trade: Top Line And Bottom Line
When discussing a company’s operating results, market commentators will often refer to the “top line” or the “bottom line.” These terms refer to two figures — total sales revenue and net income (profit) and their respective positions on a business income statement.
Sales appear at the top of the income statement, followed by a display of expenses, like the cost of goods sold, operating expenses, etc. After deducting these, a company arrives at the bottom of the income statement and reaches net income (although technically this number usually sits above a breakdown of net income into “per share” amounts).
Top-line growth is certainly viewed positively by the market, but bottom-line growth is likely more important, as it describes a company’s profitability and net income is used to calculate earnings per share.
Top-line growth isn’t synonymous with increased profits; put another way, no one cares about skyrocketing sales if expenses eat them all up before they reach the bottom line and increase profitability.
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