Bottom Line

Bottom line refers to the net income that a company generates after considering the profit earned and losses incurred. The word bottom in the term depicts the location of the net earnings or the net income in the income statements, i.e., the last line of the bottom of the page. It is an important part of the document as it signifies the total profit reaped or total loss incurred by a firm.

A bottom line appears to be a ready reference for the management and directors to go through to make major business decisions. As a result, companies try to improve it by adopting measures to increase revenue and enhance productivity.

• The bottom line, also called net income, is the total profit or loss of the business for a particular reporting period.
• It can be improved by increasing revenue, decreasing costs and expenses, and improving efficiency in operations.
• The name indicates the location of the net income figure in the income statement, i.e., at the bottom of the last line of it.
• Considering triple bottom line makes companies consider their social and environmental factors besides their financial performance.

Bottom line usually refers to the most important conclusion or outcome derived from an explanation, elaboration, or discussion. In business, the term signifies the last thing that ultimately matters to the companies – the profits/earnings/income. 

Firms frame strategies, adopt measures, carry out functions, and do whatever is necessary to be productive and profitable. The income statement's bottom line indicates how effective all means have been in increasing the efficiency and profitability of companies. 

At the bottom of the document, these figures ensure that all expenses are already deducted from the revenue generated for that period to obtain the net income that companies are left with. These expenses or liabilities include everything from loans and taxes payable, interest expenses[ to administrative costs.

In short, the net income specified in the last line is the earnings of a firm after all deductions are made, and there is nothing left to subtract. The stakeholders use this information for making major business and investment decisions.

The triple bottom line concept needs a special mention while explaining the idea. While the bottom line also emphasizes the actions that influence a company's net income or net profits, it is the concept that makes companies consider their social and environmental factors besides their financial performance. This is because the rest two factors also help in improving profit generation. In short, the concept works on – Profit, People, and Planet.

An improved figure at the bottom of the income statement makes a company trustworthy. Thus, businesses have to ensure they work on increasing the bottom line. Multiple ways can be adopted to improve these figures, and the first on the list is to improve the top line, i.e., the sales. When the sales increase, the revenue will automatically improve.

Secondly, the revenue does not increase if the expenses, obligations, and liabilities incurred do not decrease. Thus, minimizing the deductions is important to improve the net income figures. Finally, framing proper strategies and best practices to enhance customer focus is the best thing to do. It will ensure customer retention and guarantee retained earnings at the end of the month, quarter, or year.

Next, companies can have cost-cutting measures beyond reducing the workforce. Finally, keeping track of return on investments, direct costs, product pricing, profits, budget planning, etc., can also help. Fixing a competitive price is vital to ensure customers remain loyal to brands. Reducing the expected interest by decreasing the frequency of taking loans for business purposes boosts income retention and maximizes cash flow.

Let us consider the following bottom line examples to understand how the concept works:

Example 1 – Conceptual

Though financial activities and different functions carried out by businesses help increase productivity, the social and environmental impact of the company and brand also plays a great role. Recent research indicated that the consumers in the United States are more inclined toward brands and businesses that pose less threat to the environment. By doing so, the citizens ensure their participation in saving the social and environmental surroundings.

Example 2 – Calculation

Suppose ABC Corp presents its income statement for the year ended Dec 2021.

The formula used to calculate the bottom line of a business in the above table is:

Bottom Line (Net Income) = Total Revenue -Total Expenses

Here,

Total Revenue = Top line + Other income

Total Expenses = Direct Cost + Indirect Cost + Interest Expenses+ Taxes

The bottom line and top line are the two terms present in the income statement of a business. Both these concepts help gauge business performance in their own way. While the former is the net income or any factor or action influencing a company's net income or net profits, the top line is the net sales or net revenue a company makes or generates.

The top line growth measures the capability of a business to advertise their products and promote their brands to catalyze their sales. On the other hand, the bottom line measures the ability of a business to present its products and services in such a way that it reaps more and more profits.

While the net income on the bottom can be increased by increasing the top line and reducing expenses and financial obligations, the latter involves improving the quality of the products and raising their prices.

The bottom line consists of both good and bad points influencing a business. So, let us a have a look at some of the major ones:

This article is a guide to what is Bottom Line and its meaning. Here we explain its improvement methods along with examples and its differences with top line. You can learn more about financing from the following articles –

• Above the Line Deductions
• Bottom Fishing
• Business Loan Calculator
• EBIT vs Net Income