Income Statement Percentage Change Analysis

Figure 13 1 income statement trend analysis for shows that net sales increased by 4 129 000 000 or 13 3 percent.

Income statement percentage change analysis. The percent change in operating income expresses the amount of increase or decrease in operating income from one accounting period to the next as a proportion rather than in dollars. Percentage change can be applied to any. For the income statement it can reveal if costs are remaining in line with sales revenue. Vertical analysis of income statement interpretation all the numbers are more or less the same with a difference in the range of 1 2 over the years the net income of the company has increased from 2016 to 2018 by 1 5 the companies expense on research and development has increased by nearly 1 as a percentage of net sales.

With horizontal analysis we look across the income statement at the year over year yoy change in each line item. For example net sales 13 3 percent increase equals 4 129 30 990. In order to perform this exercise you need to take the value in period n and divide it by the value in period n 1 and then subtract 1 from that number to get the percent change. To find the percentage change first calculate the dollar change between each period.

Percentage change analysis examines the change in financial statement accounts over two years. The balance sheet accounts are assets liabilities and stockholders equity. A percent change analysis shows how two items changed as a percentage from one period to another period. When you show the items of the income statement as a percentage of the sales figure it is easy to compare the income and expenses and understand the financial position of the company.

It is used for many purposes in finance most notably to indicate the price change of a security. Then divide the dollar change by the base year profit. This type of analysis will let you see how revenues and the spending on different types of expenses change from one year to the next. Percentage change represents a degree of change over time.

Consider the following example of comparative income statement analysis. Used on a balance sheet a percent change analysis shows how a balance sheet account changes from year to year or quarter to quarter. If you made 45 000 in 2015 and 50 000 in 2016 the dollar change is 5 000. For the balance sheet this type of analysis can uncover if and how individual asset and liability accounts have changed relative to the previous year.