07/31/2020 The financial statement of a company makes up of total revenue or gross sales and net income generated after deducting costs, interests, and taxes from the total revenue earned within a particular period. These two components are also known as the top line and the bottom line of the company, respectively. It helps promoters, investors, and analysts to keep track of the company's growth on a quarterly as well as yearly basis. Companies around the world are witnessing several considerable effects on their top line and bottom line as part of a ripple effect across the economy due to the COVID-19 crisis.
On a global scale, businesses involved in various industries are going through a severe cash crunch when it comes to running their daily operations. Additionally, as the lockdown was imposed shortly before the end of the financial year, companies here in India have gone through more damage because the numbers in regards to the top and bottom lines were already closed hence generating the deficit at the beginning of the next year.
To improve the bottom line, companies began focusing on reducing their overall spending, and then started deducting salaries, eventually laying off the employees. The sudden rise in unemployment led to a decrease in demand for several non-essential items, including gadgets, jewellery, automobiles, etc. Also, this created an endless vicious cycle by creating a weak top line for many companies and industries.
For instance, several companies across sectors that earn revenue by offering services to their clients rely on vendors to run their daily functions. These companies make payment to their vendors upon receiving payments from their clients. Unfortunately, when clients are unable or delay in making payment, companies struggle to pay their vendors leading to an adverse effect on both the top and bottom line by creating a bad debt in the final statement.
Many projects got delayed due to the lack of required labour force resulting in reduced production of industrial and finished goods. There has been a deflation in the bottom line due to the fixed expenses, such as rent, electricity, interests on bank loans, etc. remaining constant in all kinds of projects and output staying minimal or almost zero. Even with the moratorium on interest payment given by the bank, the companies will still need to pay them, just at a later date.
To avoid significant losses, companies with a large inventory started giving huge discounts, allowing them to function at a slower pace. They are selling products at a much lower price compared to the original market price, hitting their bottom line as the associated fixed costs for production remain the same.
Let's look at some of the measures that can help companies to manage their top and bottom lines better and even see a glimpse of growth.
- During the ongoing crisis, companies need to focus more on the bottom line than the top as the growth of the company will stagnate for some time.
- To ensure uninterrupted cash flow, companies will need to renegotiate the existing contracts with clients as well as the vendors on terms that will be beneficial for all parties.
- If you believe there will be an uptick on demand for certain products after the easing of restrictions, make sure to purchase the raw materials at a lower cost during the crisis.
- Contact your banks and apply for the moratorium on interest against loans which will be a relief for you till the situation returns to normal.
These measures will help you overcome the unforeseeable challenges posed by the coronavirus crisis.
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