Vertical Common Size Income Statements
Vertical common size financial statements remove the impact of size by expressing each line item as a percentage of a reference item, usually sales or assets. In a spreadsheet this can be done simply by dividing each line item by that year’s net revenues figure. Consider the following, which is the 3-year income statement presentation for Plantronics, Inc. included in their 10K statement filed June 5, 2006.
We can see right away that in Plantronics’ 2006 fiscal year its net income fell even though revenues increased significantly. However, it is not so easy to tell exactly why the performance deteriorated. Now consider the same statement expressed in a vertical common size format.
Presented in this format, it is easy to see that a significant increase in the cost of sales relative to total sales drove declining profit margins.
See also:
Common Size Financial Statemtents
Vertical Common Size Balance Sheets
Horizontal Common Size Income Statements
The Intelligent Investor: The Classic Text on Value Investing
Financial Statement Analysis: A Practitioner's Guide, 3rd Edition
Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)
[...] « Vertical Common Size Income Statements Measuring Investment Performance [...]
February 8th, 2007 at 9:12 am
[...] « Using Common Size Financial Statements to Forecast Earnings Vertical Common Size Income Statements [...]
February 8th, 2007 at 9:16 am
[...] have shown how to prepare vertical common size income statements. This article addresses how they can be used to forecast [...]
February 8th, 2007 at 9:18 am
[...] Sheets Just as with income statements, common size balance sheets can be presented either vertically or horizontally. A horizontal common size balance sheet expresses each year’s balance sheet [...]
February 8th, 2007 at 9:22 am
[...] Profit margins measure how effective a company is at converting revenue into profits. Since the denominator of profit margin ratios is sales and the numerators are income statemtent items, all profit margin ratios can be found directly on a vertical common size income statement. [...]
February 8th, 2007 at 1:24 pm