What Is Bottom Line Profit?

Profit equals total revenue minus expenses.

Bottom line profit indicates to investors, analysts and lenders your company's net income for a month or quarter. Accountants calculate bottom line profit to measure sales and expense levels at the end of a period.

Definition

In accounting parlance, bottom line profit equals total revenue minus total expenses. Revenue is income you earn from a labor agreement or sales earnings from a business you own. Expenses are charges or costs you incur through operating activities and may include bills, interest and the cost of materials or goods sold.

Significance

Bottom line profit analysis is important because it allows you to measure how profitable a company is. This analysis also indicates a firm's market share or competitive standing. For example, a lender might view a business loan application favorably if the company's bottom line profit indicates high sales levels.

Financial Analysis

You may also analyze other financial indicators to complement bottom line profit analysis. For instance, profit margin and gross margin are important financial analysis concepts. Profit margin equals net profit, or bottom line profit, divided by total revenue. Gross margin equals sales minus the cost of goods sold divided by total revenue.

References

• Investopedia: The Bottom Line On Margins
• Harvard Business School: The Bottom Line: Profit From Managing Your Product Flow
• Investopedia: Profit and Loss Statement - P&L