Two income statements for PS Enterprises are shown below:
Prepare a vertical analysis of PS Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?
A) Yes, increased by 5%
B) Yes, increased by 111%
C) No, decreased by 5%.
D) None are correct.

Question

Two income statements for PS Enterprises are shown below: 
 Prepare a vertical analysis of PS Enterprises' income statements. Has operating income increased or decreased as a percentage of revenue?
A) Yes, increased by 5% 
B) Yes, increased by 111% 
C) No, decreased by 5%. 
D) None are correct.

Quizplus · Accepted Answer

A vertical analysis involves expressing each item on the income statement as a percentage of total revenue, so that we can see what proportion of revenue each item represents. Looking at the two income statements provided, we can see that operating income has decreased as a percentage of revenue from 25% to 20%, a decrease of 5%. Therefore, the correct answer is C, "No, decreased by 5%." Options A, B, and D are incorrect.

Two Income Statements for PS Enterprises Are Shown Below