Vertical analysis of income statements automatically provides the cost of goods sold ratio and the gross profit ratio.

Question

Quizplus · Accepted Answer

Vertical analysis involves calculating the percentage of each line item in an income statement relative to the total revenue. This automatically provides the cost of goods sold ratio (cost of goods sold divided by total revenue) and the gross profit ratio (gross profit divided by total revenue).

Vertical Analysis of Income Statements Automatically Provides the Cost of Goods