US CMA Part 2 · Chapter 1 · Question 1 of 15
In a common-size (vertical) analysis of the income statement, each line item is expressed as a percentage of which amount?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) Net sales (revenue) for the same period
Explanation
Vertical (common-size) analysis of the income statement expresses every line item as a percentage of net sales for the same period, so that cost structures can be compared across periods and between companies of different sizes. Expressing an item as a percentage of the same item in a base year is horizontal (trend) analysis. Common-size balance sheets use total assets as the base, not the income statement.
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