Should investors focus more at the top line or bottom line growth? ?

As an equity investor, I actually care more about the bottom line more than topline. That doesn't mean that I don't take time to understand how the revenues grew. While it often is sexy to talk about how your topline (ie. Revenues) have grown year-on-year, what matters more is the margin profiles and other costs to take note of when you finally get to the bottom line. Using revenue multiples is thus favoured especially when companies are actually in a net loss position.

1. Margin profile: Eg. Company could be generating a 30% YoY growth in revenue, but actually, most of this growth is stemming from the new business segment which had a low 1% Gross Margin business. This means that over time, the companies margins even at the gross level are likely to shrink.

2. Operating leverage: This refers to the company's ability to leverage economies of scale as it grows. Ie. You should be looking at improving margins at the operating and net level as the company scales.

3. Looking at bottom line provides an overall picture of the expenses incurred. Always keep an eye out for one-off expenses - how large are they? Or even for headcount costs, the company can be growing, but are staff costs growing much faster than revenues? These would subsequently eat into margins.

Hi there! investors should consider both top line and bottom line growth. The bottom line describes how efficient a company is with spending and managing its operating costs. Whereas the top line only indicates how effective the company is at generating sales and revenue. The top line does not take into consideration operating efficients which could impact the bottom line.

The reason growth stocks emphasize top line growth is because as the company is growing rapidly, it focuses on investing more to keep the momentum. Additionally, valuation of companies are often based on revenue multiplies which is calculated from the top line. Therefore, in the short term, investors would focus on the top line growth.