Using vertical analysis of the income statement, a company's net income as a percentage of net sales is 10%; therefore, the income tax expenses as a percentage of net sales must be 90%.

Question

Quizplus · Accepted Answer

Vertical analysis involves expressing each item on the financial statement as a percentage of a base amount, which is usually net sales. Therefore, if net income is 10% of net sales, it does not mean that the income tax expenses are automatically 90% of net sales. The percentage of income tax expenses would need to be separately calculated and cannot be determined solely based on the percentage of net income.

Using Vertical Analysis of the Income Statement, a Company's Net