CFA Level I · CFA Level I Exam · Analyzing Income Statements
An analyst converts a company's income statement to a vertical common-size format. Each line item is most likely expressed as a percentage of:
In a vertical common-size income statement, each line item is expressed as a percentage of revenue, so revenue equals 100%. This lets analysts compare cost structure and margins across periods and across companies of different sizes without distortion from scale.
- Anet income.
- Brevenue.Correct
- Ctotal assets.
Explanation
A vertical common-size income statement divides every line item by revenue (net sales), so the top line is 100%. Net income and total assets are not the standard base for an income statement.
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