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In Business, What is the Bottom Line?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 02 August 2014
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For many investors, the bottom line is one of the single most important pieces of data on the company balance sheet. Essentially, this is the amount of profit that is realized after all expenses and taxes have been satisfied. Because bottom lines begin with the gross sales and then deduct taxes and expenses to affirm the net earnings for a given financial period, investors are able to quickly determine the current status of the company. The bottom line sums up all the data, so it is possible to know if the company is realizing some net income from the business venture, or if the operation is currently operating in the red.

The bottom line can be a cause for rejoicing, or it can provide the motivation to make some changes in the way the company operates. In situations where there is little or no net profit realized, steps are usually taken to increase the profitability of the corporation. Depending on the circumstances, the strategy to increase profits may originate with investors, or with the management of the company.

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Making improvements to the bottom line can be accomplished in several different ways. Since it is the amount of revenue left after all expenses are met, a logical approach to improving the bottom line is to decrease the amount of resources that go to covering expenses. This will often involve some cuts in departmental budgets, or at the very least eliminating discretionary funds that are called upon to handle expenses not covered in existing budgets. The cuts may be realized by eliminating positions and combining responsibilities, cutting back on the availability of overtime, and reducing some full time positions to part time.

Along with trimming expenses, profit is often increased by developing new revenue streams for the company. This may include launching a new good or service, or finding a new market for an existing product. If at all possible, the new source of revenue is cultivated with little or no extra expense, which helps to maximize the impact of the new revenue stream on the bottom line.

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Discuss this Article

comfyshoes
Post 3

Icecream17-I agree as I also invest in dividend funds. I just wanted to say that the other day I heard someone talking about a triple bottom line and I did not know what it was.

I was told that it was a reference often made by environmentally conscious businesses that refers to its people, planet, and profit.

It takes into account all business practices that have changed to be more environmentally friendly. For example, my children’s school in an effort to reduce expenses, be more environmentally focused and profitable they have stopped mailing invoices and have instead sent 100% of the school correspondence by email.

This allows the school to save the money on postage, thus increasing the profit, reduce the amount of paper actually used, which helps the planet, and allows its people more time to devote to other tasks which will make them more productive.

icecream17
Post 2

GreenWeaver-I know that companies with a great bottom line also share some of these profits with investors when they declare dividends.

Dividends are an additional yield earned on a stock that is normally paid quarterly or annually. Many people rely on dividends as passive income that often allows investors to live more comfortable lifestyles.

My husband’s grandparents relied on the income from dividends of various stocks and holdings in order to live comfortably in retirement. These income producing assets make a difference over time.

GreenWeaver
Post 1

In business the bottom line actually is what keeps the businesses afloat. The bottom line or profit allows companies to expand their product assortments and hire new employees.

Profitable businesses that have a healthy bottom line might also invest in new technologies that will ultimate enhance the customer experience.

For example, in my children’s school they now use touch screens and white boards in order to make the learning process multisensory and interactive.

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