What does bottom-line mean?
By Research Desk
about 10 years ago
- ‘Bottom-line’, as the word indicates, is the bottom most line item appearing on a company’s income statement, which is Net Income (NI) or profit after tax (PAT) or net profit or net earnings.
- Bottom line describes how efficient a company is with its spending and operating costs and how effectively it has been controlling total costs.
- Net income is calculated after considering all expenses and deducting them from the revenue. Formula to calculate is as under:
Net Income = Total revenue - Total expenses
Income statement for XYZ.
For the year ended March 31, 2014
In Rs. crore
| Total Revenue |
| 1,00,000 |
| Less: Cost of Goods Sold |
| (20,000) |
| Gross Profit |
| 80,000 |
| Less: Operating Expenses |
|
|
| Salary | 10,000 |
|
| Rent | 10,000 |
|
| Utilities | 5,000 |
|
| Depreciation | 5,000 |
|
| Total Operating Expenses |
| (30,000) |
| Less: Interest Expenses |
| (10,000) |
| Less: Taxes |
| (10,000) |
| Net Income (Bottom line) |
| 30,000 |
- When we hear that a company is ‘improving its bottom line’, it means the company is growing its earnings or/and reducing its costs. It must be highlighted that improving the top line often improves the bottom line as long as the costs remain stable and there are no other unexpected expenses.
- Let’s take an example of an interview article in The Economic Times, dated 21st August 2014, which reads “Expect 10-15% higher bottom line compared to last year: Kamal Baheti, CFO McLeod Russell” The interview article reflects the views of the company CFO that the company could experience higher net income (bottom line) due to rising output (in this case - tea) prices.