The Entrepreneur's Guide to Financial Statements by David Worrell

Author:David Worrell
Language: eng
Format: epub
Publisher: ABC-CLIO
Published: 2014-03-15T00:00:00+00:00

Simple Ratios: Common-Sizing the P&L

Recall that in Part 1 of this book we looked at how to “common-size” a P&L statement. We said that in some cases it is more useful to look at percentages instead of dollars—for example, calculating the percentage of net profit helps us to compare one business to another, or one month to the next. When we calculate percentages within a P&L (to create a common-sized P&L), what we are really doing is figuring a bunch of simple ratios, or fractions. A common-sized P&L shows all the results as a percentage of sales. We calculate those percentages by dividing each item into total sales.

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