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.

plantronicsincomestatement.gif

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.

plantronicscommonsizeis.gif

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

For more information, see all articles on: Common Size Analysis, Financial Statement Analysis, Fundamental Analysis, Investing in Stocks, Ratio Analysis, Security Selection

See also:
  • Common Size Balance Sheets
  • Horizontal Common Size Income Statements
  • Common Size Analysis
  • Profit Margins
  • Using Common Size Financial Statements to Forecast Earnings
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    5 Responses to “Vertical Common Size Income Statements”

    1. Common Size Analysis - Financial Education - Everything You Need To Know About Finance Says:

      [...]     « Vertical Common Size Income Statements Measuring Investment Performance [...]

    2. Horizontal Common Size Income Statements - Financial Education - Everything You Need To Know About Finance Says:

      [...]     « Using Common Size Financial Statements to Forecast Earnings Vertical Common Size Income Statements [...]

    3. Using Common Size Financial Statements to Forecast Earnings - Financial Education - Everything You Need To Know About Finance Says:

      [...] have shown how to prepare vertical common size income statements. This article addresses how they can be used to forecast [...]

    4. Common Size Balance Sheets - Financial Education - Everything You Need To Know About Finance Says:

      [...] 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 [...]

    5. Profit Margins - Financial Education - Everything You Need To Know About Finance Says:

      [...] 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. [...]

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