Two income statements for Toby Sam Enterprises are shown below:
Prepare a vertical analysis of Toby Sam Enterprises' income statements.Has operating income increased or decreased as a percentage of revenue?

A) increased by 5%
B) increased by 111%
C) decreased by 5%
D) decreased by 111%

Question

Two income statements for Toby Sam Enterprises are shown below: ​
Prepare a vertical analysis of Toby Sam Enterprises' income statements.Has operating income increased or decreased as a percentage of revenue?

A) increased by 5% 
B) increased by 111% 
C) decreased by 5% 
D) decreased by 111%

Quizplus · Accepted Answer

To perform vertical analysis, we calculate each item on the income statement as a percentage of revenue. 
For the year ended December 31, 20X2: 
Operating income as a percentage of revenue = $22,000 ÷ $440,000 = 5% 
Net income as a percentage of revenue = $15,000 ÷ $440,000 = 3.41%

For the year ended December 31, 20X1: 
Operating income as a percentage of revenue = $23,000 ÷ $460,000 = 5% 
Net income as a percentage of revenue = $16,000 ÷ $460,000 = 3.48%

Comparing the two years, we see that operating income as a percentage of revenue has decreased from 5% to 5% - which means decreased by 5%. Therefore, the correct answer is C.

Two Income Statements for Toby Sam Enterprises Are Shown Below