Loading the player...

What is a 'Common Size Income Statement'

A common size income statement is an income statement in which each account is expressed as a percentage of the value of sales. It is used for vertical analysis, in which each line item in a financial statement is listed as a percentage of a base figure within the statement, to make comparisons easier.

BREAKING DOWN 'Common Size Income Statement'

A common size income statement analysis makes it easier to see what is driving a company’s profits, and compare that performance to its peers. By looking at how that performance has been changing over time, common size financial statements help investors spot trends that a raw financial statement may not uncover. Large changes in the percentage of revenue used by different expense categories over a given period of time could be a sign that the business model is changing, or that manufacturing costs are changing.

The common figure for an income statement is total sales revenue, so the analysis is the same as calculating a company’s margins. The net profit margin is simply net income divided by sales, which happens to be a common-size analysis. The same goes for calculating the gross margin (sales revenue minus cost of goods sold, divided by sales revenue) and operating margin (gross profit minus selling & general administrative expenses, divided by sales revenue).

For example, Company A has an income statement with five different line items, revenue, cost of goods sold (COGS), selling & general administrative expenses (S&GA), taxes and net income. Net income is calculated by subtracting COGS, S&GA expenses and taxes from revenue. If revenue is $100,000, COGS is $50,000, and S&GA is $10,000, then gross profit is $50,000, operating profit is $40,000, and net income is $31,600 (less taxes at 21%). The common size version of this income statement is to divide each line item by revenue, or $100,000. Revenue divided by $100,000 is 100%. COGS divided by $100,000 is 50%, operating profit divided by $100,000 is 40%, and net income divided by $100,000 is 32%. As we can see, gross margin is 50%, operating margin is 40%, and the net profit margin is 32% - the common size statement figures.

For more on common size financial statements, read The Common-Size Analysis of Financial Statements.

  1. Gross Margin

    A company's total sales revenue minus its cost of goods sold, ...
  2. Profit

    Profit is the financial benefit realized when the amount of revenue ...
  3. Gross Earnings

    Gross earnings, from an accounting, perspective are the amount ...
  4. Gross Income

    Gross income is the total income from all sources before deductions ...
  5. Financial Statements

    Financial statements are written records that convey the financial ...
  6. Cost of Revenue

    The cost of revenue is the total cost of manufacturing and delivering ...
Related Articles
  1. Investing

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  2. Investing

    The Common-Size Analysis of Financial Statements

    Using common-size financial statements helps investors spot trends that a raw financial statement may not uncover.
  3. Investing

    Gross, Operating and Net Profit Margins

    A company’s income statement includes the company’s gross, operating and net profits.
  4. Investing

    The Difference Between Gross and Net Profit Margin

    To calculate gross profit margin, subtract the cost of goods sold from a company’s revenue; then divide by revenue.
  5. Investing

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  6. Investing

    12 things you need to know about financial statements

    Before investing, discover 12 characteristics of financial statements that can help you evaluate companies and increase your chances of choosing a winner.
  7. Investing

    How To Analyze Netflix's Income Statements

    Learn how to read Netflix's income statement, calculate net income and interpret EPS to evaluate the company's current financial condition.
  8. Investing

    A Look At Corporate Profit Margins

    Take a deeper look at a company's profitability with the help of profit margin ratios.
  1. How do earnings and revenue differ?

    Revenue is the total income earned by a company for selling its goods and services. Earnings are the bottom line on a company's ... Read Answer >>
  2. How are the three major financial statements related to each other?

    Learn why investors analyze a company's financial statements, and how the income statement, balance sheet and cash flow statement ... Read Answer >>
  3. How does gross margin and net margin differ?

    Gross margin or gross profit margin and net profit margin are both profitability ratios used in determining the financial ... Read Answer >>
  4. What is the formula for calculating profit margins?

    Learn about gross, operating and net profit margins, how each is calculated and how they are used by businesses and investors ... Read Answer >>
  5. What is the difference between revenue and profit?

    Revenue is the total amount of income generated by a company. Profit is the bottom line or net income after accounting for ... Read Answer >>
Trading Center