We’ve calculated the common size income statement below. Remember that we simply divide each item by total sales.
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PHILIPPE CORPORATION 2002 Common Size Income Statement |
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Sales |
100.0% |
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Cost of goods sold |
68.6 |
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Depreciation |
13.6 |
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Earnings before interest and taxes |
17.8 |
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Interest paid |
12.3 |
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Taxable income |
5.5 |
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Taxes (34%) |
1.9 |
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Net income |
3.6% |
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Dividends |
1.2% |
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Addition to retained earnings |
2.4% |
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Net income is 3.6 percent of sales. Because this is the percentage of each sales dollar that makes its way to the bottom line, the standardized net income is the firm’s profit margin. Cost of goods sold is 68.6 percent of sales.