In a common-size income statement, each item on the statement is expressed as a percentage of

In a common-size income statement, each item on the statement is expressed as a percentage of total revenue or sales. This type of statement allows for easy comparison and analysis of different companies, regardless of size. Here are the steps to create a common-size income statement:

1. Start with a standard income statement: This includes all the usual line items such as revenue, cost of goods sold (COGS), gross profit, operating expenses, operating income, interest, taxes, and net income.

2. Calculate the total revenue: This is usually the first line item on the income statement.

3. Express each item as a percentage of total revenue: Divide each line item by the total revenue and multiply by 100 to get the percentage. For example, if COGS is $50,000 and total revenue is$200,000, then COGS would be expressed as (50,000 / 200,000) x 100 = 25% in the common-size income statement.

4. Repeat for all line items: Do this for all items on the income statement. The result is a common-size income statement where each item is expressed as a percentage of total revenue.

5. Analyze the results: Now you can easily compare this company's income statement with that of other companies, regardless of size. You can see how much of each dollar of revenue is spent on COGS, operating expenses, etc., and how much ends up as net income.