Question

Vertical analysis (common-size) percentages for Baker Company’s sales revenue, cost of goods sold, and expenses are as follows. Did Baker’s net income as a percent of sales increase, decrease, or remain unchanged over the 3-year period? Provide numerical support for your answer.

Vertical Analysis	2018	2017	2016
Sales revenue	100.0%	100.0%	100.0%
Cost of goods sold	60.0	63.9	65.0
Expenses	26.0	26.6	27.5

Answer 1

Net income = sales revenue - cost of goods sold - expense

As the given values are in percentages, we can directly calculate Net income as

	2018	2017	2016
Sales	100%	100%	100%
Less: COGS	60%	63.90%	65%
Less: expenses	26%	26.60%	27.50%
Net Income	14.00%	9.50%	7.50%

We can see from the above chart that the net income in 2016 of 7.5% increased to 9.5% in 2017 and further increased to 14.00% in 2018.

So as a whole we can conclude that Net income as a percent of sales increase over 3 years period.