Common-Size Analysis of the Income Statement
Common-size analysis of the income statement can be performed by stating each line item on the income statement as a percentage of revenue. Common-size statements facilitate comparison across time periods (time series analysis) and across companies (cross-sectional analysis) because the standardisation of each line item removes the effect of size.
Income Statement Ratios
One aspect of financial performance is profitability. One indicator of profitability is net profit margin, also known as profit margin, and return on sales.
Another measure of profitability is the gross profit margin. Gross profit (gross margin) is calculated as revenue minus cost of good sold, and the gross profit margin is calculated as gross profit divided by revenue:
