Income Statement Analysis

 

How to Analyze an Income Statement ?

There are two ways we will do it while using the Excel !

1. Trend Analysis 

2. Vertical Analysis 

Trend Analysis 

In the analysis we will compare the year by year analysis for the whole statement. 

If you have a statement you can do it easily but for practise you can download some companies statements like Tata and GE Vernova for example.

So if we take the first step we will see Revenue and mostly statement shows two to three years numbers, if we have March 24 and March 25 we will do the analysis like, 

= (March 25 Revenue- March 24 Revenue) / March 24 Revenue

And we can do it for all line items. 

Vertical Analysis 

In this analysis we will compare each item by a particular item, where we see that Revenue is the most prominent item in Income Statement we can compare it with all others for example only. 

So the formula will be 

= Cost of Sales / Revenue or = Insurance Expense / Revenue (in percentage) 

We can take any other item to as per the requirement of our analysis. 

To make these analysis more understandable and catchy to eyes we can use Conditional Formatting.

Conditional formatting

In Conditional Formatting we will do a simple exercise of comparing the units and highlighting them as green and red as per our conditions. 

Like for : 

Trend Analysis, I will see that current year item is more than or less than previous year item, if more than it will show red and if less than it will show green, as I want to know and analyze for example is current year Revenue Growth is less than previous year it will show red and I will know that there's a problem and to the contrary if the Cost of Sales of current year is more than previous year it will show green but I will know it's a point of concern and will see if the increase rate is okay according to organization growth or not.

Same we can do it with Vertical Analysis.