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

Question

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Vertical analysis of the income statement involves expressing each item as a percentage of sales, but the cost of goods sold (COGS) as a percentage of sales does not necessarily equal 85% just because net income is 15%. Other expenses besides COGS, such as operating expenses, taxes, and interest, also need to be subtracted from sales to arrive at net income.

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