18.5: Common-Size Income Statements

Question 1

Common-size analysis of the income statement can be performed by…

Answer 1

Stating each line item on the income statement as a percentage of revenue.

Question 2

Net profit margin = …

Answer 2

Net income / Revenue

Question 3

Gross profit margin = …

Answer 3

Gross profit / Revenue

Question 4

Four types of items are:

Answer 4

• Unrealized gain/losses from available for sale securities.
• Foreign currency translation adjustments.
• Unrealized gains/losses on derivative contracts used for hedging.
• Adjustments for minimum pension liability.