WallStreetMojo

WallStreetMojo

WallStreetMojo

MENUMENU
  • Blog
  • Free Video Tutorials
  • Courses
  • All In One Bundle
  • Login
Home » Accounting Tutorials » Income Statement Tutorials » Top Line

Top Line

By Ratnesh SharmaRatnesh Sharma | Reviewed By Dheeraj VaidyaDheeraj Vaidya, CFA, FRM

Top Line Definition

Top line is the revenue earned by the business by selling goods or services and is reported in the income statement for a defined period (monthly, quarter, semi-annual or yearly). Further, it is calculated after deducting the discounts given to the customer and also net off the sales reversed during the year.

Explanation

For any entity or its stakeholders, the most critical item in the entire set of financial statements is the total sales. It is not the number of goods sold, but the “amount” of total revenue generated from the business of the entity. Revenue means quantity multiplied by the price charged per unit.

We treat the increase in sales growth as growth in the top line. Other income earned is not linked to the primary business, and therefore, it is not included.

Popular Course in this category
Sale
All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)
4.9 (1,067 ratings)
250+ Courses | 40+ Projects | 1000+ Hours | Full Lifetime Access | Certificate of Completion
View Course

Please see below some of the top companies as examples and what forms their top line.

Top line Company

How to Analyze and Calculate Top Line?

Let’s have an example:

You can download this Top Line Excel Template here – Top Line Excel Template

Income Statement: Amount in $ Million

Top-line (statement of Income)

We can calculate the top line as follows:

Top-line (gross revenue)

Explanation

  • The top line of the entity is only “Gross Revenue” and not the “total income”. Other income may include rebates earned from suppliers, interest income on fixed deposits, write-back of provisions, etc. Other income is
  • Sales are increasing as the capacity utilisation of the plant capacity is increasing. Also, the selling pricing per unit is increasing consistently.
  • The bottom line (net profit) is increasing as reflected in the growth in net profit margin over the years.
  • Company’s major cost is dedicated to employee cost and marketing cost. Further, the cash profits are also increasing in line with an increase in the top line.

Why Top Line Matters?

  • Top line drives the business. Lower sales mean the lower scale of business and higher sales mean a larger scale of business. We compare this scale to what competitors are achieving.
  • Everything in the financial statements is linked to the top line. Several employees working in a company are based on the amount of business to be handled. Their paychecks are dependent again, dependent on the business.
  • Companies keep the pricing of raw material relatively low to ensure higher gross margins. They also keep other direct overheads low to ensure sufficient gross profits.
  • The indirect expenses are managed in the way to ensure sufficiency of operating profit margins (i.e. EBITDA margin). EBITDA is an important figure for an entity which means earnings before interest, taxes, depreciation and amortisation.
  • Increase in sales should reflect the increase in EBITDA. In case the EBITDA  margin is steady and not increasing over the years, it means a company has reached the maturity stage of the business cycle. At this stage, innovations will only help the business to survive in the long term.
  • Various ratios are linked to the top line, such as gross margin, net margin, efficiency ratios, EBITDA ratio, EBIT ratio, Cash ratio, etc. All such ratios reflect the growth of the entity over the years.

Recommended Articles

This article has been a guide to top line and its definition. Here we discuss examples, working and how to increase top line revenue along with its importance. You may learn more about financing from the following articles –

  • EBITDA Formula
  • Gross Sales
  • Net Sales
  • Net Revenue
0 Shares
Share
Tweet
Share
Primary Sidebar
Footer
COMPANY
About
Reviews
Contact
Privacy
Terms of Service
RESOURCES
Blog
Free Courses
Free Tutorials
Investment Banking Tutorials
Financial Modeling Tutorials
Excel Tutorials
Accounting Tutorials
Financial Statement Analysis
COURSES
All Courses
Financial Analyst All in One Course
Investment Banking Course
Financial Modeling Course
Private Equity Course
Venture Capital Course
Excel All in One Course

Copyright © 2021. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. CFA® And Chartered Financial Analyst® Are Registered Trademarks Owned By CFA Institute.
Return to top

WallStreetMojo

Free Investment Banking Course

IB Excel Templates, Accounting, Valuation, Financial Modeling, Video Tutorials

* Please provide your correct email id. Login details for this Free course will be emailed to you

Book Your One Instructor : One Learner Free Class
Let’s Get Started
Please select the batch
Saturday - Sunday 9 am IST to 5 pm IST
Saturday - Sunday 9 am IST to 5 pm IST

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Login

Forgot Password?

WallStreetMojo

Free Accounting Course

You will Learn Basics of Accounting in Just 1 Hour, Guaranteed!

* Please provide your correct email id. Login details for this Free course will be emailed to you

WallStreetMojo

Download Top Line Excel Template

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) View More