Income Statement Ratio Analysis Example

1 pgold s net sales cost of sales and gross profit it s clearly shown that the gross profit in 2015 is php 16 488 741 550 while revenue is php 97 372 662 646.

Income statement ratio analysis example. All income statement items are expressed as a percentage of sales. Ratio analysis can be done using three methods vertical analysis also called common size statements analysis it compares each item to the base case of the financial statements. Some of the most common ratios include gross margin profit margin. It is the importance of income statement ratios to be considered when we performance financial statements analysis.

In the income statement net profit stays at the bottom line and it is the result of deducting the cost of goods sold operating expenses tax expenses and interest expenses during the period from total sales revenues. When you take an owner earnings approach to income statement analysis you need all three financial statements together balance sheet income statement and cash flow statements as well as the ability to discount cash flows to come up with a net present value. Financial ratios are used to compare companies within the same industry. Financial ratios are usually split into seven main categories.

For example in the income statement shown below we have the total dollar amounts and the percentages which make up the vertical analysis. Liquidity solvency efficiency profitability equity market prospects investment leverage and coverage. Consider this example of puregold s pgold income statement below. With this method of analysis of financial statements we will look up and down the income statement hence vertical analysis to see how every line item compares to revenue as a percentage.

Cost of goods sold had a corresponding increase of 1 605 000 000 or 14 5 percent.