Bottom-Line Growth vs Top-Line Growth

The top line and bottom line 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.

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. 

Companies that see a surge in top-line growth are usually experiencing an increase in sales or revenues. There are various ways a company can grow its top line. For example, the marketing team might launch a new ad campaign that successfully brings in customers and increases sales by 20 per cent over the previous quarter. The company could come out with a new product that generates additional revenue or a company could increase prices. A company could also increase its top line through an acquisition of another company.

The top line shows how effective the company is at generating sales. However, it does not consider operating inefficiencies that could affect the company's bottom line. The term "top line" comes from the fact that a company reports its revenue numbers at the top of its income statement. The top line is a pure gross sales number showing how much revenue the company brought in for a given period. As such, it does not subtract expenses, such as the cost of goods sold (COGS), incurred by the company to manufacture its goods. It does not show any reductions for discounts or returns.

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