Bottom-Line Growth vs. Top-Line Growth
The result of growth
Management can apply strategies to increase results. For starters, the revenue increase, or top row, should filter and increase the bottom row. This can be done by increasing production, reducing the return on sales by improving products, expanding the product line or increasing prices. Other income, such as investment income, interest income, rent or accommodation fees charged, and the sale of property or equipment, also increase the result.
The company can increase its lower limit by reducing costs. The company's products can be manufactured using a variety of input products or using more efficient methods. Reducing wages and benefits, working with less expensive institutions, using tax breaks and limiting the cost of capital are ways to increase the result. For example, a company that finds a new supplier of raw materials, which would save millions of dollars, would contribute to the company's success. Conversely, if a company's bottom line shows a decrease from one period to the next, it indicates that the company has experienced a drop in revenue or a sharp increase in costs.
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In terms of accounting, the lower position of the company does not carry forward the income statement for one period. Accounting entries are made to close all temporary accounts, including all income and expense accounts. After closing these accounts, the net balance or total is transferred to retained earnings.
The company's management can spend the result or net profit in different ways. The result can be used for payments to shareholders in the form of dividends as an incentive to retain ownership. In addition, the bottom line can be used to repurchase shares and dispose of equity. Or, the company may retain all of the reported profits for use in product development, location expansion, or other means of improving the company.
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The highest growth
Companies that see a surge in growth tend to experience an increase in sales or revenue. There are various ways a company can grow its first lines. For example, a marketing team may launch a new advertising campaign that successfully attracts customers and increases sales by 20% compared to the previous quarter. The company may come up with a new product that brings in extra revenue, or the company may increase prices. A company can also increase its top line by acquiring another company. Strategic acquisitions can lead to an increase in market share, which in turn contributes to the growth of the upper level.
The top bar shows how effective the company is in generating sales. However, it does not take into account the inefficiency of work, which may affect the company's results. The term "top line" comes from the fact that the company reports its revenue numbers at the top of the income statement. The top line is a purely gross sales indicator that shows how much revenue the company has earned over a period of time. As such, it does not deduct costs, such as the value of goods sold (COGS), incurred by the enterprise for the production of its goods. It does not display discounts on discounts or returns.
Growth at the highest level is an increase in the revenue that a company receives from its core business operations. Companies may receive other types of income, such as interest and income from the sale of assets. These types of income are not included in the growth rates at the highest level.
The main differences
The most profitable companies tend to grow both their top and bottom lines. However, more established companies may have equal sales or revenues for a given reporting period, but can still increase their results by reducing costs. Cost-cutting measures are common during periods of sluggish economic activity or recession.