Income Statement Analysis Example

Example 1 consider the following example of an income statement of the xyz company.

Income statement analysis example. Comparative income statement format combines several income statements as columns in a single statement which helps the reader in analyzing trends and measure the performance over different. For example you can compare one company s profits to its competitors by examining its gross profit margin operating profit margin and net profit margin. Let s see some examples of vertical analysis of an income statement to understand it better. Income statement analysis investors can use income statement analysis to calculate financial ratios that can be used to compare the same company year over year or to compare one company to another.

Common size income statement analysis states every line item on the income statement as a percentage of sales. As you see in the above example we do a thorough analysis of the income statement by seeing each line item as a proportion of revenue sales revenue sales revenue is the income received by a company from its sales of goods or the provision of services. If you have more than one year of financial data you can compare income statements to see your financial progress. 2001 2000 and 1999.

This income statement analysis lesson retains a sample income statement oldie but goodie from microsoft and it works because it covers all the bases and poses an understandable example. The income statement below is from microsoft s 2001 annual report and it shows the full fiscal year income statement figures for three years. Unlike the balance sheet the income statement calculates net income or loss over a range of time. For example in the income statement shown below we have the total dollar amounts and the percentages which make up the vertical analysis.

For example annual statements use revenues and expenses over a 12 month period while quarterly statements focus on revenues and expenses incurred during a 3 month period. Income statement for year ended 31st december 2000 traditional format sales 5 x 680 x 40 136 000 production costs 2 800 x 40 112 000 gross profit 24 000 non manufacturing costs see note 1 32 050 net loss. It helps the reader of such a statement to compare the results over the different periods for better understanding and also for detailed analysis of variation of line wise items of income statement. They involve simple addition and subtraction.

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.