COVID-19 Effects On the Top Line And the Bottom Line Of the Company
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The top line and the bottom line are the two most important requisites of a company’s financial statement – top line refers to the company’s revenue or gross sales whereas bottom line is the net income generated after the deductions of costs, interests and taxes from the total revenue earned in a certain period. Promoters, analysts, and investors keep a tab of these lines to understand the company’s sustenance and growth on a quarterly as well as yearly basis. The COVID - 19 crises has created a ripple effect across the entire economy creating several major effects on the top line and bottom line of companies.
- Companies across industries globally are facing a severe cash crunch in respect to running their operations on a day-to-day basis. Indian companies especially have witnessed more damage considering that the lockdown took place just before the end of the financial year where the numbers with respect to the top line and bottom were already closed hence generating a deficit for the next year in the beginning itself
- In order to improve the bottom line the companies originally began by reducing their overall costs, the next step was salary deductions eventually leading to letting go of their employees. This unemployment has led to massive reduction in demand for many non-essential requirements (Properties - residential and commercial, automobiles, gadgets, jewelry, etc.) further leading to a weak top line for several companies and industries, hence creating a continuous vicious cycle
- Several companies across sectors depend on their vendors in order to run their functions, meaning companies that earn revenue by providing services to their clients, take Uber and Bluedart as examples. These companies pay their vendors after receiving payments from their clients. Unfortunately, the non-payment or the delays in payment from clients has resulted in non-payments to the vendors again leading to an adverse effect on both, the top and more so on the bottom line by producing bad debt in the final statement
- Many projects have gone on hold due to the unavailability of the necessary man-power, because of this there is a low production of industrial and finished goods. The fixed costs such as rent, electricity, interests on bank loans, etc. are consistent in these projects but there is minimal or zero output here again leading to a deflation in the bottom line. Though the banks have given a moratorium on the interest, the companies would still need to pay them, just at a later date
- Companies that already have a large inventory have started giving discounts; this is in order to not incur complete losses and also to continue to function, even if it is at a slow pace. They are selling their products at a much lower price than the original market price – a huge hit to their bottom line as the fixed costs still remain the same
Several companies are implementing measures to manage their top and bottom lines better; few of them are shared here –
- Focus more on the bottom line than the top line in the current situation, as the growth of the company might remain stagnant for a certain period
- Renegotiate the existing contracts with the clients and the vendors on mutually beneficial terms; this is to ensure a continuous cash flow
- Procure raw materials at a lower cost in the crisis, if you believe that the demand of your product will increase once the lockdown eases
- Connect with your banks and apply for moratorium on interests against loans, this shall giving you a breathing period till the situation goes back to normal
- Shift to new and different platforms which might help bring additional revenue to the top line. Considering that digital is the new norm in this crisis, you can look at capitalizing on it for your products
- Research on your industries in countries like China, South Korea and understand as to how they have opened their trades post the lockdown; this shall act a guideline to help you to do the same in near future
This COVID – 19 has been an unpredictable challenge with major consequences, the above measures are how we work on making most from it. We have also recently received support from the Indian Government in the form of ‘Atmanirbhar Bharat Abhiyan’ which has announced a relief package of INR 3 Lakh Crore for the MSME industries, we look forward to this being a huge aid in the coming months.