Comparative Income Statement Analysis Example

Common size income statement analysis states every line item on the income statement as a percentage of sales.

Comparative income statement analysis example. Horizontal analysis comparative income statement example vertical analysis allows you to see the relationship between each item in the statement as a percentage of the whole. This is determined by dividing the net pre tax profit by the total assets shown on the balance sheet. In this type of analysis income statement metrics such as total revenue growth and gross profit margin are calculated for similar companies within an industry and compared to one another. Then divide the dollar change by the base year profit.

In year 1 for example for every 1 00 of sales 0 55 went to pay for the goods. The percentages help you to analyze changes in the income statement items over time but it might be easier if you think of the percentages as pennies. Comparative income statement format of abc limited for the period ended 2016 and 2017 based on the above comparative income statement of abc limited it can be analyzed how an increase in sales 25 over the. For example if net pre tax profit is 100 000 and net sales are 200 000 the net profit ratio would be 50 percent 100 000 divided by 200 000 the same ratio should be performed both statements.

Furthermore such a statement helps in a detailed analysis of the changes in line wise items of the income statement. For example in the vertical analysis of the income statement each expense account is represented as a percentage of total revenue. Recall that horizontal analysis calculates changes in comparative statement items or totals. Comparative financial statement analysis in such situations helps to find out where costs have increased which has resulted in lower net income than the previous year.

The comparative financial statements of synotech inc will serve as a basis for an example of horizontal analysis and vertical analysis of a balance sheet and a statement of income and retained earnings. If you have more than one year of financial data you can compare income statements to see your financial progress. In this case the base year profit is 45 000 for 2015. Comparative income statement for the years ended 31st dec 2008 31st dec 2009.