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

Question

Quizplus · Accepted Answer

Vertical analysis only provides percentages for each line item in relation to net sales, not to each other. Therefore, it cannot be assumed that the cost of goods sold is 85% of sales just because net income is 15% of sales. The cost of goods sold percentage would need to be separately calculated or provided in the vertical analysis.

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