Bottom line definition

What is the bottom line?

The bottom line is a term used to describe a company’s net income or earnings per share (EPS). If it’s referring to net income, it is the total profit made, minus any outgoings. And if it’s referring to EPS, it is the bottom line figure divided by the number of outstanding shares in the company.

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How is the bottom line used?

The bottom line is used to determine how well a business is performing. It is also an indicator of market performance, product/service value, a company’s cost control, investment allocation and other macroeconomic factors – all of which could be positive or negative.

If the bottom line is low or constantly declining, it is an indication that one of these factors need to be reconsidered by the management team.

Can a company increase its bottom line?

Yes, a company can increase its bottom line – there are two main ways in which a business will attempt to do this. Firstly, it could try to increase profits by reviewing costs, improving marketing efforts or expanding the business through acquisitions of other companies or creating new product lines. Secondly, it could try to decrease costs by cutting down on unnecessary expenses. This can directly impact employees, as it can affect headcount, salaries and bonuses.

It’s up to the management team of a business to determine which strategies it will put in place to increase the bottom line.

What can a company’s bottom line tell traders and investors?

A company’s bottom line can tell traders and investors how effective the business’s strategy is and by extension, the likelihood of future growth. By conducting thorough fundamental analysis, traders can study a company’s financials and determine the health of the business.

The bottom line is therefore an important factor in share trading, because if the company is not performing well – and the bottom line is suffering – it could affect the market sentiment toward its share price.

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