how the bottom line is used
the bottom line or net income of a company does not carry over from one accounting period to the next on the income statement accounting entries are performed to close all temporary accounts including all revenue and expense accounts at the end of the period upon the closing of these accounts the net income is transferred into retained earnings which appear on the balance sheet from here a company may elect to use net income in several different ways the bottom line can be used to issue payments to stockholders as an incentive to maintain ownership this payment is called a dividend alternatively the bottom line can be used to repurchase stock and retire equity a company may simply keep all earnings reported on the bottom line to utilize in product development location expansion or other means of improving the business bottom line vs top linebottom line refers to a company s net income found at the bottom of its income statement net income is derived from deducting expenses and cogs if applicable from revenues the bottom line shows how profitable a business is and how well it controls expenses the top line also found on the income statement is a component of net income it refers to the gross revenues generated by a business within a certain period as the name suggests the top line refers to the top line item of an income statement bottom line results can give insight on whether there are issues with the top line or revenues increases in the top line indicate an increase in sales or revenues whereas increases in the bottom line could indicate an increase in sales a decrease in expenses or both an increased top line indicates that more products and services were sold in the reported period however it does not necessarily correspond to a higher net profit or income if the top line increases yet the bottom line decreases attention should be given to expenses and other deductions from revenues example of bottom linecigna a publicly traded health insurance company reported its bottom line for the year ending december 31 2020 as 8 49 million a 65 8 increase from the previous year 2it recorded total revenues as 160 40 million and total benefits and expenses as 152 25 million resulting in 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 resulting in an income before taxes of 10 87 million taxes of 2 38 were deducted leaving a bottom line of 8 49 million special considerationsin addition to analyzing a company s bottom line for profitability there is a push to view the company holistically by measuring its impact on society and the environment hence was born the concept of the triple bottom line tpl which focuses on profit people and the planet the triple bottom line theory suggests that qualitative factors should be incorporated in measuring the success of an organization in accordance with this theory a company s commitment to being socially and environmentally responsible is used along with profitability to evaluate performance there are no defined measurements prescribed and there is no consensus among companies on how to measure success in these areas so it remains largely subjective some suggest converting social capital and environmental protections to monetary figures whereas some suggest that tbl be measured according to an index despite how it s measured it warrants attention as more focus is given to how we protect and sustain the environment and contribute to society bottom line faqsthe bottom line in business refers to a business s net income net earnings or net profit it is referred to as the bottom line as it is found at the bottom of the net income financial statement the bottom line is calculated by deducting expenses from revenues another word for bottom line is net income which is found on the bottom line of a company s net income statement other words used to describe the bottom line are net earnings and net profit the bottom line is calculated by deducting expenses from gross revenues or sales gross sales or revenues generally include the total sales and other income for a certain period examples of commonly used expenses include depreciation expenses operating expenses and interest expenses from the same accounting period the bottom line tells a company how profitable it was during a period and how much it has available for dividends and retained earnings what s retained can be used to pay off debts fund projects or reinvest in the company the bottom linethe bottom line refers to the net income of a company for a certain period it is recorded on the bottom line of the net income financial statement the bottom line is calculated by subtracting expenses from gross sales or revenues and it shows how profitable the business was during a specific accounting period business management can employ different tactics such as reducing expenses or focusing on marketing efforts to generate more sales to increase the bottom line in contrast the top line refers to the gross sales or revenues of a company during an accounting period the top line or gross revenues is used to calculate the bottom line alternatively the concept of triple bottom line suggests that companies should focus on the profitability of their company as well as their commitment to being socially and environmentally responsible 