Bottom Line

What is Bottom Line?

The bottom line in a sentence can be referred to the Earnings, net Income, Earnings Per Share (EPS) or the profit of a company. The bottom line reference describes the expected net income figure’s location on the income statement of a company.

Commonly, the bottom line is used in reference to actions that may result in the increase or decrease of net earnings or the overall profit of a company. For instance, if a company is growing its earnings or decreasing its costs, it will be referred to as a business that is enhancing the bottom line.

A majority of companies intends to improve the bottom line via two methods: improving Efficiency (cutting costs) or gaining more revenue (generating top-line growth).

Detailed Meaning about Bottom Line

Putting it in simple words, the bottom line is the net income that is reported at the end of the income statement. This statement has a basic format, and the varying layouts, result in net income being placed towards the end of the entire statement.

The statement starts with the primary business activity’s sale or revenue of the business that is placed at the top. Additional revenue sources like investment income or interest get listed next.

The next section of the reports enlists expenses that can either be grouped or added differently on the Basis of company and Industry reference. And, at last, the report showcases total revenue minus total expenses give the net income for a specific Accounting period available for dividend distribution or company retention.

Management can validate strategies, helpful enough, for bottom line growth. An increase in the top-line revenues can also increase the bottom line. This could be done by increasing productions and decreasing sales returns through product enhancement, increasing prices, and widening the product lines.

Apart from that, income like interest income, investment income, fees collected, rental or sale of equipment or property can also result in the bottom line increase. Alongside, a company’s bottom line can also increase via the decrease in expenses.

How to Use the Bottom Line?

The bottom line accounting of a company doesn’t move forward from one accounting period to the next. Account entries are executed to close temporary accounts, including expense and revenue accounts.

Upon closing these accounts, the bottom line is transferred into retained earnings that appear on the Balance Sheet. From there, the company can choose to use net income in several ways.

For instance, a bottom line can be used to pay to stockholders as an incentive to Handle the ownership; which is known as a dividend. On the other hand, it can also be used to repurchase stock and expired equity.