When looking at any organization’s income statement, the lines indicating the bottom line and top line are almost always shown. Investors can make decisions about continuing in an investment, withdrawing all funds or injecting more money just based on the bottom and top line data.
These concepts are relevant to supply chain professionals as supply chain processes can directly impact the bottom line.
What is the top line?
The top line shows an organization’s revenue. When a company projects top line growth on an income statement, it means that the company is enjoying an increase in revenue.
What is the bottom line?
The bottom line refers to a company’s net income. In other words, this refers to the income after all deductions have been made from gross sales. Some of these expenses can be repayments on loans, marketing costs, administrative costs and even taxes. The bottom line shows net profits or earnings.
Bottom and Top Line Growth
Companies can grow by increasing both bottom and top lines or by decreasing expenses and hence increasing the bottom line.
Increases in top line do not necessarily always result in an increase in the bottom line. For example an increase in sales may be negated by unfavorable foreign exchange rates or increasing cost of labor. The reverse is also true, where an organization can decrease top line while increasing bottom line.
Income statements sometimes mention EBITA, which is not the true bottom line. EDITA refers to earnings before interest, taxes, depreciation amortization. This means that these expenses have not yet been deducted from earnings.