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For many investors, the bottom line is one of the single most important pieces of data on the company balance sheet. Essentially, this is the amount of profit that is realized after all expenses and taxes have been satisfied. Because bottom lines begin with the gross sales and then deduct taxes and expenses to affirm the net earnings for a given financial period, investors are able to quickly determine the current status of the company. The bottom line sums up all the data, so it is possible to know if the company is realizing some net income from the business venture, or if the operation is currently operating in the red.
The bottom line can be a cause for rejoicing, or it can provide the motivation to make some changes in the way the company operates. In situations where there is little or no net profit realized, steps are usually taken to increase the profitability of the corporation. Depending on the circumstances, the strategy to increase profits may originate with investors, or with the management of the company.
Making improvements to the bottom line can be accomplished in several different ways. Since it is the amount of revenue left after all expenses are met, a logical approach to improving the bottom line is to decrease the amount of resources that go to covering expenses. This will often involve some cuts in departmental budgets, or at the very least eliminating discretionary funds that are called upon to handle expenses not covered in existing budgets. The cuts may be realized by eliminating positions and combining responsibilities, cutting back on the availability of overtime, and reducing some full time positions to part time.
Along with trimming expenses, profit is often increased by developing new revenue streams for the company. This may include launching a new good or service, or finding a new market for an existing product. If at all possible, the new source of revenue is cultivated with little or no extra expense, which helps to maximize the impact of the new revenue stream on the bottom line.