Common Size Income Statement Analysis

Common Size Income Statement 

A Ltd ( in
 A Ltd 
B Ltd ( in
 B Ltd ( %)
Sales 500 100 700 100
Less Cost of Sales 325 65 510 72.86
Gross profit 175 35 190 27.16
Operating Expenses
Office Expenses 20 4 25 3.58
selling expenses 30 6 45 6.42
Less Total operating expenses 50 10 70 10
Operating Profit 125 25 120 17.14
Add Miscellaneous Income 20 4 15 2.14
Total Income 145 29 135 19.28
Less Non operating Income
Interest 25 5 30 4.28
Net Profit 120 24 105 15

In above table, we have made common size income statement by taking profit and loss account data of A Ltd and B Ltd. Now we are starting common size income statement analysis on following basis.

1st Base of Analysis : Comparison of Gross Profit 

We will make Pie chart of A Ltd and B Ltd by taking its % sales, % cost of goods sold.

By seeing its pie chart, it is clear that A Ltd has manage better its cost of sales. Due to this, its gross profit is more than B Ltd. B Ltd should adopt the techniques of controlling cost of sales of A Ltd. Cost of sales' main factors are purchase, direct expenses and closing stock. If B Ltd will buy good quality material at minimum cost and try to decrease its direct expenses, its gross profit will surely increase. 

2nd Base of Analysis : Comparison of Operating Expenses

When we compare two companies on the basis of common size income statement, we also check their operating expenses. In operating expenses, we include office and selling expenses. Both companies total operating expenses is 10%. So, we can not take the decision which company has better for saving operating expenses. 

3rd Base of Analysis : Non - Operating Expenses

In non-operating expenses, we include interest expenses, deferred expenses written off. Company B Ltd's non operating expenses are less than company A Ltd. But, we also do not forget that this is just on the basis of sales proportion. We are just estimating that our sales which is our total revenue, is sufficient to pay all operating and non operating expenses. In B Ltd case, it has good because it is less than A Ltd. 

4th Base of Analysis : Net Profit 

Net Profit % of A Ltd and B Ltd will show clear picture of performance of A and B. A Ltd earned 24% net profit and B Ltd earned 15% net profit. From this, we can tell the result that A company's overall profitability is good than B Ltd.

Download our Accounting eBooks

Financial Accounting eBook

Download Now »

Cost Accounting eBook

Download Now »

Corporate Accounting eBook

Download Now »

Management Accounting eBook

Download Now »






access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar Control Your Spending corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation Diwali Messages documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Finance Journal Entries Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps Google Adsense google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting Intangible interest international Internet Introduction of Tally 9 inventory investment investment in Shares invoice IT Japan Job costing journal entries Journal Entries eBook Help Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting Online Accounting Course otcei pakistan parents Partnership pay pal pdf Personal Finance pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance truthfulness tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching Wealth wikipedia working capital youtube
Accounting Education: Common Size Income Statement Analysis
Common Size Income Statement Analysis
Accounting Education
Not found any lecture VIEW ALL Continue reading Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock