What does bottom-line mean?

By Research Desk
about 4 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.

 

 

Popular Comments