What Is the Bottom Line?
The reality alludes to a company's earnings, profit, net income, or earnings per share (EPS). The reference to the reality portrays the relative location of the net income figure on a company's income statement.
The term "main concern" is regularly utilized in reference to any activities that might increase or diminish net earnings or a company's overall profit. A company that is developing its earnings or diminishing its costs is supposed to be working on its main concern. Most companies aim to work on their primary concerns through two simultaneous methods: expanding revenues (i.e., produce top-line growth) and further developing effectiveness (or cutting costs).
Figuring out the Bottom Line
The reality alludes to the net income reported at the lower part of the income statement. The income statement has a general format and, in spite of the fact that there are various varieties of designs, every one of them bring about net income toward the finish of this financial statement.
The income statement starts with a company's principal business action's sale or service revenues at the highest point of the report. Different wellsprings of revenue, like interest or investment income, are listed next. The accompanying section reports expenses, which might be assembled and reported diversely depending on the industry and company preferences. At the lower part of the income statement, the total revenue minus total expenses leaves the net income for the accounting period that is accessible for company retention or dividend distribution.
Management can order strategies to increase the reality. Increases to top-line revenues can increase the reality. This might be finished by expanding production, bringing down sales returns through product improvement, extending product lines, or expanding product prices. Other income, for example, investment income, interest income, rental or co-location fees collected, and the sale of property or equipment likewise increase the reality.
The net income of the most profitable company in the world, Saudi Aramco.
A company can likewise increase its main concern through the reduction of expenses. According to goods and products, things can be created utilizing less expensive raw materials or by utilizing more efficient methods. Decreasing wages and benefits, operating out of more affordable facilities, and restricting the cost of capital are ways of decreasing expenses to increase the main concern.
How the Bottom Line Is Used
The reality, or net income, of a company, doesn't carry over starting with one accounting period then onto the next on the income statement. Accounting sections are performed to close all transitory accounts, including all revenue and expense accounts, toward the finish of the period. Upon the closing of these accounts, the net income is moved into retained earnings, which shows up on the balance sheet.
From here, a company might choose for utilize net income in more ways than one. The reality can be utilized to issue payments to stockholders as an incentive to keep up with possession; this payment is called a dividend. On the other hand, the main concern can be utilized to repurchase stock and retire equity. A company may basically keep all earnings reported on the main concern to use in product development, location expansion, or different means of working on the business.
Primary concern versus Top Line
Primary concern alludes to a company's net income found at the lower part of its income statement. Net income is derived from deducting expenses (and COGS, if applicable) from revenues. The main concern shows how profitable a business is and the way that well it controls expenses.
The top line, likewise found on the income statement, is a part of net income. It alludes to the gross revenues produced by a business inside a certain period. As the name recommends, the top line alludes to the top detail of an income statement. Main concern results can give knowledge on whether there are issues with the top line, or revenues.
Increases in the top line show an increase in sales or revenues, though increases in the reality could demonstrate an increase in sales, a reduction in expenses, or both. An increased top line demonstrates that more products and services were sold in the reported period. Nonetheless, it doesn't be guaranteed to compare to a higher net profit or income. Assuming the top line increases yet the primary concern diminishes, consideration ought to be given to expenses and different deductions from revenues.
Illustration of Bottom Line
Cigna, a public health care coverage company, reported its primary concern for the year ending December 31, 2020, as $8.49 million, a 65.8% increase from the previous year.
It recorded total revenues as $160.40 million and total benefits and expenses as $152.25 million, bringing about an income from operations of $8.15 million. From the income from operations, gains and other income totaling $4.35 million were added, and costs and losses of $1.64 million were deducted, bringing about an income before taxes of $10.87 million. Taxes of $2.38 were deducted, leaving a main concern of $8.49 million.
As well as dissecting a company's main concern for profitability, there is a push to see the company comprehensively by measuring its impact on society and the environment. Consequently was conceived the concept of the [triple base line](/triple-main concern) (TPL), which centers around profit, individuals, and the planet.
The triple main concern theory proposes that qualitative factors ought to be incorporated in measuring the progress of an organization. As per this theory, a company's commitment to being socially and environmentally responsible is utilized alongside profitability to assess performance.
There are no defined measurements recommended, and there is no consensus among companies on the most proficient method to measure progress in these areas. In this way, it remains to a great extent subjective. Some propose changing social capital and environmental protections over completely to monetary figures, though some recommend that TBL be measured by an index.
Notwithstanding the way in which it's measured, it warrants consideration as more center is given to how we secure and support the environment and add to society.
Primary concern FAQs
What Is the Bottom Line in Business?
The reality in business alludes to a business' net income, net earnings, or net profit. It is alluded to as the main concern as it is found at the lower part of the net income financial statement. The main concern is calculated by deducting expenses from revenues.
What Is Another Word for Bottom Line?
A different way to say main concern is net income, which is found on the reality of a company's net income statement. Different words used to depict the main concern are net earnings and net profit.
How Do You Calculate the Bottom Line?
The reality is calculated by deducting expenses from gross revenues or sales. Gross sales or revenues generally incorporate the total sales and other income for a certain period. Instances of usually utilized expenses incorporate depreciation expenses, operating expenses, and interest expenses from a similar accounting period.
Why Is the Bottom Line Important?
The primary concern lets a company know how profitable it was during a period and the amount it has accessible for dividends and retained earnings. What's retained can be utilized to pay off obligations, fund projects, or reinvest in the company.
The Bottom Line
The main concern alludes to the net income of a company for a certain period. It is recorded on the primary concern of the net income financial statement. The main concern is calculated by deducting expenses from gross sales or revenues, and it shows how profitable the business was during a specific accounting period. Business management can utilize various strategies, like decreasing expenses or zeroing in on marketing efforts to produce more sales, to increase the main concern. Interestingly, the top line alludes to the gross sales or revenues of a company during an accounting period. The top line, or gross revenues, is utilized to compute the main concern. On the other hand, the concept of triple primary concern proposes that companies ought to zero in on the profitability of their company, as well as their commitment to being socially and environmentally responsible.
- Triple primary concern (TPL) alludes to measuring the profitability of a company, alongside how socially and environmentally responsible a company is.
- The top line alludes to gross sales or revenues, which are found on the top line of the income statement.
- Management can increase the primary concern by instituting strategies to increase revenues or decline expenses.
- Net income, or the main concern, can be retained for later use in the business, distributed as dividends, or used to repurchase shares of outstanding stock.
- The main concern alludes to a company's net income, which is introduced at the lower part of the income statement.