From the course: Corporate Financial Statement Analysis
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Common size income statement
From the course: Corporate Financial Statement Analysis
Common size income statement
- The DuPont framework highlights issues that need further examination. We drill down into those issues using common-size financial statements. The results of our common-size analysis will lead us to other ratios that might be of interest. An examination of those other ratios will eventually lead us to ask questions of the right people. The raw financial statement numbers for Uncertain Company and Benchmark Company are tough to interpret because the scale differences. But if we just do this simple transformation, divide every number in the balance sheet and every number in the income statement by sales for the year, you get percentages that all of a sudden tell you all kinds of things. Let's start by looking at the common-size income statement. We see, for example, that for both companies, Uncertain and Benchmark, cost of goods sold is 40% of sales, meaning that they're about the same. The selling price of the goods is more than the cost of the goods sold. Cost of goods sold about 40%…
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