Topline refers to sales and bottomline refers to profit numbers reported by companies in their income statement
During the corporate results season, we often come across these two words - topline and bottomline. These words may sound complicated. However, it points to two simple things that help comprehend a company’s performance.
Topline refers to sales and bottomline refers to profit numbers reported by companies. Both these terms come from the accounting document known as the income statement or profit / loss account.
Topline refers to sales or revenue shown on the top of the income statement of a company. When reporting quarterly performance, company’s post the period’s sales number as the first entry in the topline of the income statement. Therefore, when people talk about the company’s “topline growth”, they refer to an increase in its gross sales or revenues. When companies speak about the need to increase their topline, they are discussing about the need to focus on generating/increasing sales.
The bottomline is the ‘net profit’ shown at the bottom of the income statement of a company. The bottomline is a company’s income after deducting all expenses from revenues. These expenses comprise interest charges paid on loans, income taxes, operating and administrative costs. This is what the company is left with after paying all its expenses for the period reported.
A company’s bottomline can also be referred to as net earnings. Bottomline usually shows the efficiency of the company in controlling costs even as it delivers higher sales. A company that is growing its net earnings or reducing its costs is said to be "improving its bottomline".
Most companies aim to improve their bottomlines through two methods: Growing revenues (i.e., generate top-line growth) and increasing efficiency (or cutting costs).
At times, topline and bottomline numbers move in opposite direction. For instance, a company may increase its revenue and improve topline but rising raw material cost may eat into its bottomline figure. These numbers can be compared with peer companies to check the financial health of the company.