Heard about topline and bottomline on TV. But what do Topline and Bottomline mean?
Topline is the Revenue or the gross sales of the company. Bottomline is the net profit of the company, which is calculated by adding other income to, and subtracting various expenses from the top line. The other income can be interest income, investment income, etc, and the expenses can be interest charges, administrative costs, marketing costs, income taxes, and so on.
Why are they called Topline and Bottomline?
Every year, companies publish an Income statement, which shows the profit or loss of the company. Total sales for the year appear at the top of this income statement, whereas the net profit appears at the bottom. Hence the names Topline and Bottomline.
Since the bottom line is the profit, is that what’s given to the stock holders as dividend?
The company decides how much of the bottomline or profit is paid to the stock holders. A portion of the bottomline can also be used to repurchase the company’s stock, reinvest in the company’s growth, etc.
How is knowing the Topline and Bottomline useful as an investor?
The Topline and Bottomline help the investor understand the financial strength of the company. Also, analyzing the change in the Topline and Bottomline from one year to another tells you about the company’s performance over time – whether it is growing or not, how fast it is growing, etc.
Do both Topline and Bottomline go up or down together?
No, it is possible for the bottomline to decrease while the topline increases, and vice versa. For example, a company’s topline may grow, but if expenses like salaries and marketing costs also increase, the bottomline can actually decrease. On the other hand, mature companies may not increase the topline, but can still increase the bottomline by cutting costs.
Can Bottomline be more than Topline?
Yes, it is possible, although not very common. For example, if a company’s other income, like interest income, which is not included in the topline, is more than its sales, the Bottomline can be more than its Topline.