The top line is a very important metric for understanding a business. It is positioned at the very top of the Profit & Loss statement. For some of us regular business folks, it just feels like another word we aren’t sure how to define, let alone understand what it is used for. So I’m here to tell you in a simple way!
The top line is a very important metric to understand a business. It is positioned at the very top of the Profit & Loss statement (or P&L), but why is it there? It’s actually a really critical line, important to every company. It gives the last three years of numbers in three columns. It's where you can see the sales, trends of the company, growth, and how big your company is. It’s a simple place where executives and shareholders can look to see how the company is doing overall. They want to know:
What is the trend of your sales year after year?
Are you growing your company? If not, how come?
How big is your company?
Because the top line shows your sales, that is how we determine how big the company is. For example, Walmart is the largest company in the United States right now, with $559 billion dollars in sales.
This line gives companies a ranking number within the hierarchy of all the businesses in the United States. The secret is: that you need Business Acumen to learn these terms and feel as confident in business as your executives. Heaven forbid you make a mistake in front of your CEO on a term like top line. So as simple as the ‘top line’ may sound, it’s important to know the reasoning behind it, what it tells you about a company, and how it can be used.
After all, it is at the top line of the income statement for a reason.