Final answer:
COGS is found to be 31.91% of net sales when you divide $75,000 by $235,000 and multiply by 100, rather than the suggested 78.72%.
Step-by-step explanation:
To calculate the percentage of Cost of Goods Sold (COGS) to net sales using vertical analysis, you employ a straightforward formula. The objective is to express the relationship between the cost of goods sold and net sales as a percentage. In the given example, where COGS is $75,000 and net sales are $235,000, the calculation is as follows:
\[ \text{COGS Percentage} = \left( \frac{\text{COGS}}{\text{Net Sales}} \right) \times 100 \]
Plugging in the values, you get:
\[ \text{COGS Percentage} = \left( \frac{75,000}{235,000} \right) \times 100 \]
This computation results in approximately 31.91%. Therefore, the COGS represents about 31.91% of the net sales, not 78.72% as indicated in the question.
This percentage is valuable for financial analysis as it provides insights into the cost structure and efficiency of the production process. In this case, the result suggests that for every dollar of net sales, around 31.91 cents are attributed to the cost of producing the goods sold.
Vertical analysis is a useful tool for financial statement analysis, allowing stakeholders to evaluate the relative proportions of different line items in relation to a base figure, typically expressed as a percentage.