Question

Expressing gross profit for 2003 as a percentage of net sales in 2003 is an example of:

a)vertical analysis

b)horizontal analysis

c)ratio analysis

d)economic value analysis

Answer 1

Answer:- Expressing Gross Profit for 2003 as a percentage of net Sales in 2003 is an example of​​​​​ Vertical Analysis.

In Vertical Analysis we prepared Common-Size Statement like - Common-Size Income Statement and Common-Size Balance Sheet.

In Common-Size Income Statement we express each Item of this Statement as a Percentage of Net Sales.

In Common-Size Balance Sheet we express each Items as a percentage of Total Assets Or Total Liabilities and Shareholders'Equity.

​​​​​​Example:-

Common-Size Income Statement

Items	Amount	Percentage
Sales	10,000	100%
Less:- Cost of Goods Sold	6,000	60%
Gross Profit	4,000	40%

Cost of goods sold%=(Cost of goods sold/Sales)×100

Gross Profit%=(Gross Profit/Sales)×100