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Prepare an income statement in comparative form stating each item for both years as a percent of sales.
Vertical analysis of income statement revenue. Vertical analysis is a kind of financial statement analysis wherein each item in the financial statement is shown in the percentage of the base figure. The vertical analysis method vertical analysis also known as common size analysis is a method that sets every line item of a financial statement as a percent of one number. Vertical analysis of income statement revenue and expense data for innovation quarter inc. All the line items in a vertical analysis are compared with another line item on the same statement.
It is one of the popular methods of financial statements used as it is simple and also called a common size analysis. Therefore revenue is shown as 100 and every other line item of income statement is shown as a percentage to the total revenue. Vertical analysis of financial statements is a technique in which the relationship between items in the same financial statement is identified by expressing all amounts as a percentage a total amount. Vertical analysis is the proportional analysis of a financial statement where each line item on a financial statement is listed as a percentage of another item.
This method compares different items to a single item in the same accounting period. To perform vertical analysis of the income statement each line items of the income statement is converted as a percentage of revenue. Current year previous year sales 4 000 000 3 600 000 cost of goods sold 2 280 000 1 872 000 selling expenses 600 000 648 000 administrative expenses 520 000 360 000 income tax expense 240 000 216 000 a. In the case of an income statement it is revenue net sales.
For two recent years are as follows. Vertical analysis of the income statement shows the revenue or sales number as 100 and all other line items as a percentage of sales. You can then compare that amount between years in one business or compare the vertical analysis between 8 6 2020 cacc100 module 12 introduction 7 20 two different businesses within the same industry. This means each line item is divided by revenue to analyze the composition of costs.
This video walks you through how to calculate the numbers required for vertical analysis.
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