|Top Line vs Bottom Line|
Sales growth before expenses.
Growth in earnings defined as revenue less all costs including interest, taxes, amortization and stock based compensation.
Growth: Top Line vs Bottom Line
John Spacey, updated on April 06, 2017
Top-line growth is an increase in a firm's revenue or sales. Bottom-line growth is an increase in a firm's profitability defined as revenue minus all costs. The bottom-line tends to be the more important indicator because it represents earnings that may benefit shareholders. It is common for startup companies to experience an exponential rate of top line growth for a number of years. It can be difficult to determine whether this will ever translate into bottom line growth. To put it directly, anyone can generate revenue by spending a lot of money. The true test of a firm is whether they can scale their business in a way that makes revenue increasingly profitable.Consider a firm that grows revenue at 100% and grows costs at 150%. In this situation, the firm is losing money as it grows. Equity analysts will dive into the companies expenses to determine if they are likely to scale. A firm that is developing valuable products or assets such as software may eventually scale. A firm that is just hiring more and more salespeople at a loss to boost revenue isn't necessarily able to scale.
InvestingThis is the complete list of articles we have written about investing.
If you enjoyed this page, please consider bookmarking Simplicable.
The difference between two common investment measurements.
An overview of Regression Toward The Mean.An overview of the Efficient Market Hypothesis.
An overview of animal spirits, a theory of investing.A definition of financial market with examples.
A definition of Mr. Market, an investing theory.
A definition of organic growth with examples.
The common types of concept company.A definition of information costs with examples.
The definition of channel check with examples.A list of common business models.
A retailing strategy that combines physical locations with a strong ecommerce presence.A definition of complementary goods with several examples.
An organization that represents businesses or professionals that have something in common.
The business difference between products and services.
A few examples of common business models.
The definition of business model.
A definition of scalable business model with several examples.
A definition of two-sided market with examples.
TrendingThe most popular articles on Simplicable in the past day. Recent posts or updates on Simplicable. Site Map