Question

Assume a company has total assets of $750,000, sales of $470,000, gross margin of $350,000, income before taxes of 55,000, and net income of $40,000. If it is performing vertical analysis, what percentage would be assigned to net income?

Answer 1

The net income percentage in the vertical analysis is found by dividing net income by total sales and then multiplying by 100. For this example, the percentage is approximately 8.51%.

Step-by-step explanation:

To perform a vertical analysis and find the percentage assigned to net income, you would divide the net income by total sales. In this case, it would be $40,000 (net income) divided by $470,000 (total sales), and then multiply by 100 to get a percentage. Therefore, the percentage for net income in a vertical analysis would be approximately 8.51%.

In vertical analysis, each item on the financial statement is expressed as a percentage of a base figure. To find the percentage assigned to net income, we divide the net income by the total assets and multiply by 100:

Net Income Percentage = (Net Income / Total Assets) * 100

Using the given information, the net income percentage would be:

Net Income Percentage = ($40,000 / $750,000) * 100 = 5.33%