Common Sizing Analysis

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Common sized statements, often called “vertical analysis”, compare the relative size of all items on a particular financial statement.

Financial Statement of Activities

The vertical analysis is carried by calculating all elements of the Profit & Loss statement as a percentage of “total turnover”.
Year Ending 31st March 2004 2005 2006 2007 2008
Income
Turnover 100% Neutral 100% Neutral100% Neutral100% Neutral100%
Total turnover 140000 Neutral 200000 Neutral280000 Neutral330000 Neutral270000
Cost of Sales 46% Bad 55% Bad59% Good52% Bad56%
Gross Profit 54% Bad 45% Bad41% Good48% Bad44%
General and administrative expenses 11% Good 10% Bad7% Bad8% Good7%
Selling expenses 25% Good 23% Good20% Bad23% Bad24%
Total operating expenses 36% Good 33% Good27% Bad30% Bad31%
Operating Profit 18% Bad 13% Good14% Good18% Bad13%
Other interest rec & similar income 0% Neutral 0% Neutral0% Neutral0% Neutral0%
Profit on ordinary activities before taxation 18% Bad 13% Good14% Good18% Bad13%
Tax on profit on ordinary activities 0% Neutral 0% Neutral0% Neutral0% Neutral0%
Profit on ordinary activities after taxation 18% Bad 13% Good14% Good18% Bad13%

Glossary of Terms

Turnover

This is the income received over the statement period through sales of products and/or services.

Cost of Sales

These are the direct costs to a company of producing/delivering a product or service.

Gross Profit

The amount of turnover minus the cost of goods sold.

General and administrative expenses

In a single step income statement, all expenses are added together, primarily for simplicity. Here we have broken the expenses into general and administrative, and selling expenses. The more detail provided, the more information we have to analyse costs. If you do not have this breakdown, enter all operating expenses (not cost of goods sold) in this category.

Selling expenses

All expenses associated with selling the product or service, this could include sales and marketing expenses, advertising, sales staff etc.

Operating profit

Sometimes referred to as Operating Income, Operating profit is the amount of income derived from the company's primary or central activities.

Other interest received and similar income

Other income that is not generated through the company's primary activities such as interest income. Interest income reflects the decisions the company has made concerning how to finance its operations and invest its excess funds. The financing decision is extremely important, but it is separate from the operating decisions of the company and is therefore separated.

Interest payable and similar charges

If you gift aid some of your profits back to a parent company, do not include this in the accounts. The reason is that the tool is analysing the performance of your organisation, not what you choose to do with the profit.

Profit on ordinary activities before tax

This is the net income, prior to taxes, as tax is an important item and should be separated from the other expenses of a company. This is the measure of profit after all revenues and expenses, with the exception of tax.

Profit on ordinary activities after tax

This is the net income or the "bottom line" of the profit and loss statement. It is the measure of profit after all revenues and all expenses, including tax, have been considered.