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Dejargoned | topline and bottomline

Dejargoned | topline and bottomline

The quarterly result season is on and companies are announcing their financial results for the quarter ended December. If you look closely, you will find companies stressing on two numbers—the top line and bottom line of the company. Flip through any newspaper or listen to experts and anchors on any TV news channel and you will find them fixated on these two numbers. Though it may sound complex, the underlying meaning of these terms is quite simple.

What is top line?

This number assumes importance as it shows the business prospects of the company and the increase in the market share of the company. This number can also be used to compare the company with peers to see if the company holds a commanding position in the industry. Top line growth also shows how efficiently the company has seized opportunities in the market.

What is bottom line?

This is usually the last entry of a revenue statement and is basically the net profit. Net profit is calculated by deducting all expenses such as operating costs, interest paid on loans, tax and administrative charges from the gross revenue. This is the amount left with the company after all expenditure.

This figure shows the efficiency of the company in terms of controlling costs and utilization of available resources. The number can also go up if costs remain stable but sales revenue goes up.

How to interpret these numbers?

Both the terms help gauge the financial strength of a company. These numbers show the efficiency of the management. A strong set of both numbers would mean that the company has been able to display an all-round good performance. On the other hand, a weak set of numbers would mean the company is losing ground.

However, at times these numbers move in opposite direction. For instance, a company may increase its revenue and improve top line but rising raw material cost may eat into its bottom line figure.

These numbers can be compared with peer companies to check the financial health of the company.

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