Top line definition

What is the Top Line?

Top line refers to the revenue line item in the income statement. The name comes from the positioning of revenue in the first or “top” line of the income statement. Organizations sometimes refer to actions taken to increase their revenues as “top line” growth.

Importance of the Top Line

Analysts focus a great deal of their attention on the top line figure reported by a business, because this is a strong indicator of performance. As long as revenues continue to increase at a rate faster than the rate of inflation, they assume that a firm is financially healthy. However, a declining top line indicates a loss of market share, and therefore a likely decline in profitability. This is a particular concern when the top line continues to decline over time.

Top Line vs. Bottom Line

The top line refers to the revenue generated by a business, while the bottom line refers to its net profits. The bottom line name is derived from the positioning of the net profit line at the bottom of the income statement. Of the two concepts, the bottom line is more important, since profits must be generated in order to keep a business operational. Conversely, you could report strong top line revenue growth and yet still go out of business, if those sales do not translate into profits.

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