A company calculates its bottom line as net income, also known as profit or earnings per share (EPS). The term comes from its location at the end of an income statement. It shows how much money a business has left after covering all its expenses.

People also use “bottom line” to describe any decision or activity that increases or decreases a company’s profit. For instance, cutting costs or boosting revenue both influence the bottom line. A strong bottom line means the business is managing its finances well and is in good shape to grow.

Breaking Down the Bottom Line

Net Income: The Final Equation

Calculate the bottom line using this simple formula:

Revenue – Expenses = Net Income.

Revenue refers to all the money a business earns from selling its products or services. Expenses include everything from production costs to salaries and taxes. The company subtracts these costs to calculate its net income, which is also known as the bottom line.

Income Statement: Locating the Income Statement

An income statement shows how a company performed financially during a specific period. At the top, you’ll see revenue. The income statement lists expenses such as the cost of goods sold (COGS), operational costs, and taxes. The final figure, net income, sits at the bottom, giving the statement its name.

The bottom line doesn’t carry over to the next period. Instead, it moves into retained earnings on the company’s balance sheet, which can be reinvested or used in other ways.

How to Improve the Bottom Line

There are two key ways to boost the bottom line: increasing revenue or reducing expenses. Let’s examine both options.

1. Increase Revenue

Growing revenue helps improve net income as long as expenses don’t rise too much simultaneously. Here are some ways businesses can bring in more money:

• Expand product lines: Offering new products can attract more customers.
• Enhance quality: Improving product quality reduces returns and increases customer satisfaction.
• Raise prices: A slight price increase can significantly boost revenue, especially if the product remains competitive.
• Sell off assets: Selling unused equipment or property generates one-time income.

2. Cut Expenses

Lowering costs can also strengthen the bottom line. Some strategies include:

• Find cheaper materials: Sourcing less expensive raw materials helps cut production costs.
• Optimize efficiency: Streamlining operations reduces waste and saves money.
• Relocate to affordable facilities: Moving to areas with lower rent can reduce fixed expenses.
• Adjust workforce costs: Reducing overtime or shifting work schedules might save on labor costs.

Top Line vs. Bottom Line

Understanding the difference between the top and bottom lines is essential.

• Top Line: Refers to gross revenue—the total income before expenses are deducted.
• Bottom Line: Net income remains after subtracting all costs.

For example, if a company’s revenue increases but its expenses rise even more, the bottom line will shrink despite a higher top line. A healthy business monitors both figures, aiming for revenue growth and efficient cost management to improve profitability.

How the Bottom Line Shapes Decisions

The bottom line helps businesses decide how to allocate profits. Here’s how companies typically use their earnings:

• Dividends: Paying stockholders a share of the profits.
• Stock buybacks: Repurchasing shares to increase their value.
• Reinvestment: Funding new projects, expanding locations, or improving products.

Net income is a flexible resource that can drive growth, reward investors, or stabilize the business for the future.

Special Considerations: The Triple Bottom Line (TBL)

The triple bottom line takes the concept a step further, measuring profit and a company’s social and environmental impact. The three parts of TBL are:

• Profit: The financial health of the company.
• People: How the business treats its employees, customers, and community.
• Planet: Efforts to reduce environmental harm, like cutting emissions or using sustainable materials.

Although TBL is more challenging to quantify, it reflects growing business expectations to balance profitability with social responsibility.

Example: Analyzing a Company’s Bottom Line

Cigna, a major health insurance provider, reported its bottom line for 2023 at $5.37 billion—a 21% decrease from the previous year. While its total revenue was $195.27 billion, expenses of $186.73 billion left a smaller net profit.

This example highlights how even high revenue doesn’t guarantee a strong bottom line. High costs can significantly reduce profitability.

Why the Bottom Line Matters

The bottom line isn’t just a number on a page—it’s a key indicator of a company’s success. Shareholders, managers, and employees rely on this figure to make decisions.

• Investors look at net income to assess the company’s value and growth potential.
• Management uses it to evaluate performance and plan future strategies.
• Employees benefit from healthy profits through better job security and growth opportunities.

A declining bottom line can signal trouble, while steady improvement shows that a business is on the right track.

Final Thoughts

The bottom line is more than just net income—it reflects a company’s health and direction. By focusing on revenue growth and cost control, businesses can keep their profits strong while preparing for future challenges.

The triple bottom line pushes companies to consider how their actions affect society and the environment. A strong bottom line, balanced with ethical practices, is the ultimate goal for sustainable success.