From the course: Finance and Accounting Tips

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How to common-size the income statement

How to common-size the income statement

From the course: Finance and Accounting Tips

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How to common-size the income statement

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- In 2016, Walmart reported revenues of 482 billion dollars and net income of 15 billion dollars. Is that good, bad, up, down? How did Walmart do for the year? - Well, first of all, generating over 15 billion dollars in net income, that's pretty good. I wish I could have had a year like that. But, it turns out, that financial statements are most valuable when used to compare across time and across companies. - We can look at results across time for the same company and across companies for the same time. Here, we can see that Walmart's income from continuing operations were down in 2016 when compared to prior years. - But, note that total revenues were down as well. So, was net income down as a percentage of total revenues compared to prior years? The easiest way to answer that question is to common size the income statement. - You common size the income statement by dividing all numbers for each year by total revenues. The result for Walmart looks like this. - We can see that…

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