Common Size Income Statement Equation

Steps to prepare common size income statement specify the absolute figures of each line item of the income statement for two accounting years under consideration.

Common size income statement equation. Revenue divided by 100 000 is 100. Amount base amount and multiply by 100 to get a percentage. This is actually the same analysis as calculating a company s margins. By looking at this income statement we can see that in 2017 the amount of money that the company invested in research and development 10 and advertising 3.

These amounts are specified in column i and column ii of the common size income statement. Divide each item on the traditional income statement by the total sales revenue from the same statement. Remember on the balance sheet the base is total assets and on the income statement the base is net sales. Common size income statement presents each and every line item which is available in the income statement of the company in form of the relative percentage of sales and helps in analyzing the items that are driving the profits of the company.

Cogs divided by 100 000 is 50 operating profit divided by. Mark sales revenue as 100 percent on the new common size income statement. For example 100 000 in sales and 60 000 in cost of goods sold indicates that cogs represents 60 percent of total sales revenue. The calculation for common size percentages is.

Choose sales amount as the common base. The common figure for an income statement is total top line sales. The common size version of this income statement divides each line item by revenue or 100 000. For instance a net profit margin is simply net income.

If you have more than one year of financial data you can compare income statements to see your financial progress. What a common size income statement analysis does common size income statement analysis states every line item on the income statement as a percentage of sales.