Using vertical analysis on the income statement, a company's profit as a percentage of net sales is 15%; therefore, the cost of goods sold as a percentage of net sales must be 85%.

Question

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Vertical analysis is used to express each line item on the income statement as a percentage of net sales. While it is true that a company's profit as a percentage of net sales is 15%, it does not necessarily mean that the cost of goods sold is 85% of net sales. Other expenses such as operating expenses and interest expense are also deducted from net sales to arrive at net income. Therefore, we cannot assume a specific percentage for the cost of goods sold based on the given information.

Using Vertical Analysis on the Income Statement, a Company's Profit