CFA Level I · CFA Level I Exam · Analyzing Income Statements
A company's common-size income statement shows cost of goods sold at 60% of revenue, operating expenses at 22%, interest at 3% and a tax charge equal to 30% of pre-tax profit. Revenue is 5,000. Net income is closest to:
Net income is about 525. Pre-tax profit is 15% of 5,000, or 750, after deducting cost of goods sold, operating expenses and interest. Tax at 30% removes 225, leaving 525.
- A525Correct
- B637
- C750
Explanation
Pre-tax margin = 100% - 60% - 22% - 3% = 15%, so pre-tax profit = 750. Tax at 30% = 225. Net income = 750 - 225 = 525. The 750 option ignores tax; 637 applies a 15% tax.
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