What's The Difference Between Bottom-line

And Top-line Growth?

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BY CHRIS B. MURPHY
 
 Updated Apr 19, 2018
The top line and bottom lines are two of the most important lines on the
income statement for a company. Investors and analysts pay particular
attention to them for signs of any changes from quarter to quarter and year to
year. 

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.

More specifically, the bottom line is a company's income after

all expenses have been deducted from revenues. These expenses include
interest charges paid on loans, general and administrative costs and income
taxes. A company's bottom line can also be referred to as net earnings or net
profits.

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Comparing Bottom Line And Top Line Growth

Example - Apple Inc. 

Apple Inc. (AAPL) posted a top-line revenue number of $228.57
billion at the end of their fiscal year on September 30, 2017. The
company's revenue number represented a 6.7% top-line growth rate from the
same period a year earlier. 

Apple posted a bottom-line number of $48.35 billion in the same period

which represented a 5.8% increase in their bottom line from 2016. 

A company like Apple might experience top-line growth due to a new product

launch like the new iPhone, a new service, or a new advertising campaign that
lead to increased sales which boosted revenue by 6.7% year-on-year. Bottom-
line growth might have occurred from the increase in revenues, but also from
keeping expenses under control. 

Analyzing The Top And Bottom Line 

Management can enact strategies to increase the bottom line. For
starters, increases in revenue or the top line should filter down and boost the
bottom line. This may be done through increasing production, lowering sales
returns through product improvement, expanding product lines or increasing
prices. Other income such as investment income, interest income, rental or
co-location fees collected, and the sale of property or equipment also increase
the bottom line. 

A company can increase its bottom line through the reduction of

expenses. A company's products could be produced using different
input goods or with more efficient methods. Decreasing wages and benefits,
operating out of less expensive facilities, utilizing tax benefits, and limiting the
cost of capital are ways to increase the bottom line. For example, in a situation
where a company found a new supplier for raw materials that resulted in a
cost savings of millions of dollars would give a boost to the company's bottom-
line. Conversely, if a company's bottom line shows a decrease from one
period to the next, it's an indication the company has suffered a dip in income
or a surge in expenses.

From an accounting standpoint, the bottom line of a company does not

carry over from one period to the next on the income statement. Accounting
entries are performed to close all temporary accounts including all revenue
and expense accounts. Upon the closing of these accounts, the net balance or
the bottom line is transferred to retained earnings.

The bottom line figure or net income can be spent in a number of different
ways by a company's executives. The bottom line can be used to issue
payments to stockholders in the form of dividends as an incentive to maintain
ownership. Alternatively, the bottom line can be used to repurchase stock and
retire equity. Or perhaps a company may keep all earnings reported on the
bottom line to utilize in product development, location expansion or other
means of improving the company.

Takeaways 
Both the top line and bottom-line figures are useful in determining the financial
strength of a company, but they are not interchangeable. The bottom line
describes how efficient a company is with its spending and managing
its operating costs. Top line, on the other hand, only indicates how effective a
company is at generating sales and revenue and does not take into
consideration operating efficiencies which could have a dramatic impact on
the bottom line.
However, this is not to say that a company cannot experience both top-line
and bottom-line growth at the same time. This can be achieved if a company
earns more revenue (top line) and reduces its operating costs (bottom line). 

The most profitable companies typically grow both their top and bottom lines.
However, more established companies might have flat sales or revenue for a
particular reporting period but are still able to boost their bottom line
through expenses reduction. Cost-cutting measures are common during
periods of sluggish economic activity or recessions. Knowing the factors that
impact both the top and bottom lines can help investors determine whether a
company's management is growing their sales, revenue, and
managing expenses efficiently.