Question

In conducting vertical analysis of an income statement, what element is expressed as 100% so that...

In conducting vertical analysis of an income statement, what element is expressed as 100% so that all others are relative to it?

Gross margin

Net income

Net sales

Cost of goods sold

Business   Accounting   
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Answer #1

Option C: Net Sales is the correct answer.

Explanation:

In conducting a vertical analysis of an income statement we need a base figure upon which we can analyze the various proportions of expenses incurred during a year. Such base figure is expressed as 100% and is generally taken as net sales because it is the most suitable base upon which all other line items in an income statement can be based upon.

All other line items like Cost of goods sold, Gross margin and net income are measured as a percentage of sales which is taken as 100%.

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