======Bottom Line======
The Bottom Line (also known as [[Net Income]] or [[Net Earnings]]) is the ultimate measure of a company's profit. Think of it like your personal take-home pay after all your bills, taxes, and expenses are paid. For a business, it’s the profit remaining after every single cost—from the raw materials used to make a product to the CEO's salary and corporate taxes—has been subtracted from its total [[Revenue]]. This all-important figure is found, quite literally, at the //bottom line// of a company's [[Income Statement]], one of the three key financial reports. It's the final scorecard that tells you whether a company actually made money during a specific period. For investors, this number isn't just trivia; it's the starting point for understanding a company's true [[Profitability]] and fundamental worth.
===== What It Tells You =====
The bottom line is the heartbeat of a company's financial health. A consistently growing bottom line signals a company that is not only selling its products or services effectively but is also managing its costs with skill. It suggests a strong competitive position, efficient operations, and a management team that knows how to turn revenue into real profit. Conversely, a shrinking or negative bottom line is a major red flag, indicating potential problems with sales, cost control, or overall business strategy. For followers of [[Value Investing]], the bottom line is a cornerstone of analysis. It forms the 'E' (Earnings) in the famous [[P/E Ratio]], helping investors gauge whether a stock is over or undervalued relative to its profit-generating power.
===== How to Calculate the Bottom Line =====
While accountants follow a detailed process, the concept behind calculating the bottom line is straightforward. You start at the top of the income statement with all the money the company brought in and subtract every expense until you're left with the final profit.
The basic formula is beautifully simple:
**Net Income = Total Revenue - Total Expenses**
To get there, you typically follow these steps:
  * Start with Total Revenue (also called the 'top line').
  * Subtract the [[Cost of Goods Sold (COGS)]] to find the [[Gross Profit]].
  * Subtract all [[Operating Expenses]] (like marketing, administrative salaries, and research & development) to get [[Operating Income]].
  * Finally, subtract interest payments on debt and corporate taxes.
The number you're left with is the bottom line—the pure profit that belongs to the company's owners, the shareholders.
===== The Bottom Line for Value Investors =====
A true value investor knows that while the bottom line is critical, it must be examined with a healthy dose of skepticism. It’s a starting point, not the final word.
==== The Per-Share Perspective ====
A billion-dollar profit sounds impressive, but it's meaningless without context. Is that profit generated by a giant like Apple or a smaller, regional company? To make a fair comparison, investors use [[Earnings Per Share (EPS)]]. This metric divides the net income by the number of a company’s outstanding shares, telling you how much profit is attributable to a single share of stock.
**EPS = (Net Income - Preferred Dividends) / Average Outstanding Shares**
EPS allows you to compare the profitability of companies of different sizes on an apples-to-apples basis.
==== Beyond the Numbers: Quality of Earnings ====
The bottom line can be influenced by [[Accounting]] choices. A company might boost its net income in a single quarter by selling off a factory or using other one-time financial maneuvers. This isn't sustainable profit from its core business.
A wise investor always investigates the //quality// of the earnings by asking:
  * **Is it consistent?** Look at the bottom line over the last 5-10 years. Are profits steady and growing, or are they erratic and propped up by one-off events?
  * **Is it backed by cash?** Compare the bottom line (Net Income) to the company’s [[Cash Flow From Operations]], found on the [[Cash Flow Statement]]. A healthy company’s profits should be closely matched by the actual cash it generates. If a company consistently reports high profits but isn't generating much cash, it could be a sign of aggressive accounting or deeper business problems.
In short, the bottom line tells you //what// a company earned. A deeper dive tells you //how// and //how reliably// it earned it.