Common–Size Income Statement

Financial statement analysis includes a technique known as vertical analysis. Vertical analysis results in common-size financial statements. A common-size income statement presents all of the income statement amounts as a percentage of net sales. Below is Example Corporation's common-size income statement after each item from the income statement above was divided by the net sales of $500,000:

Example Corporation Common-Size Income Statement For the year ended December 31, 2011 Sales (all on credit) 100.0% Cost of goods sold   76.0% Gross profit   24.0% Operating expenses Selling expenses 7.0% Administrative expenses    9.0% Total operating expenses  16.0% Operating income 8.0% Interest expense    2.4% Income before taxes 5.6% Income tax expense    1.0% Net income after taxes    4.6%

The percentages shown for Example Corporation can be compared to other companies and to the industry averages. Industry averages can be obtained from trade associations, bankers, and library reference desks. If a company competes with a company whose stock is publicly traded, another source of information is that company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in its annual report to the Securities and Exchange Commission (SEC). This annual report is the SEC Form 10-K and is usually accessible under the "Investor Relations" tab on the corporation's website.