What Is the Bottom Line?

What Is the Bottom Line?

Let me explain the bottom line directly: it's a company's net income, which you might also call earnings, profit, or earnings per share (EPS). This term points to where you'll find the net income figure—right at the bottom of the income statement.

When people talk about actions that affect the bottom line, they're referring to anything that boosts or cuts into net earnings or overall profit. If a company is growing its earnings or trimming costs, you can say it's improving its bottom line. Most businesses focus on this by ramping up revenues for top-line growth while also getting more efficient or slashing expenses.

Understanding the Bottom Line

You need to grasp how the bottom line fits into the income statement. It shows the net income at the end, no matter the layout. The statement starts with sales or service revenue at the top, then adds other revenues like interest or investments.

Next come the expenses, grouped based on the industry or company preferences. Subtract total expenses from total revenue, and what's left is the net income for that period—available for keeping in the business or paying out as dividends.

Increasing the Bottom Line

Management has straightforward strategies to boost the bottom line. Essentially, more revenue lifts net income if expenses don't rise equally. To boost revenue, consider increasing production, reducing returns by improving products, expanding lines, or raising prices. You can also add income from investments, interest, rentals, or selling assets.

On the expense side, cut costs without dropping revenue. For goods, use cheaper materials or efficient methods. Lower wages, benefits, or facility costs, and limit capital expenses—these all help increase the bottom line.

How the Bottom Line Is Used

The bottom line doesn't carry over between periods on the income statement. At period's end, you close temporary accounts like revenues and expenses, transferring net income to retained earnings on the balance sheet.

From there, retained earnings can go toward dividends to keep shareholders invested, repurchasing stock to retire equity, or reinvesting in the business for development, expansion, or improvements.

Bottom Line vs. Top Line

The bottom line is net income at the income statement's end, calculated by subtracting expenses, including cost of goods sold, from revenues. It reveals profitability and expense control.

The top line is gross revenue or sales at the top. Increases in top line mean more sales, but if bottom line drops, check expenses. Bottom line growth can come from sales boosts, cost cuts, or both.

Example of Bottom Line

Take Cigna, a health insurance company, for the year ending December 31, 2023: their bottom line was $5.37 billion, down 21% from the prior year. They had $195.27 billion in revenues and $186.73 billion in benefits and expenses, leading to $8.54 billion in operating income. After deducting $3.02 billion in costs and losses, and $141 million in taxes, they arrived at that $5.37 billion net income.

Special Considerations

Beyond just profitability, there's the triple bottom line (TBL), which measures a company's success in profit, social responsibility, and environmental impact. This approach incorporates qualitative factors into performance evaluation.

There's no standard way to measure TBL—it's subjective. Some convert social and environmental aspects to monetary values, others use an index. Regardless, it highlights the growing emphasis on sustainability and societal contributions.

The Bottom Line

In summary, the bottom line is the net income from a specific period, listed at the income statement's bottom after subtracting expenses from revenues. It shows how profitable the business is. You can grow it by cutting costs or increasing revenue, and the triple bottom line reminds us to consider social and environmental responsibility alongside profits.