The income statement can also be broken down into its component parts and analyzed on a percentage basis.
Percentage Breakdown
Some of the principle items in an income statement, that could be expressed as a percentage of sales, for example, include:
Sales (100% in this example)
Cost of Sales
Gross Margin
Fixed Costs or Overhead
Net Income Before Interest and Taxes
Interest Expense and Financing Costs
Net Income Before Income Tax
Income Tax
Net After-Tax Income
By doing a comparative analysis based on percentages over different periods, you can see how the different components of the income statement are evolving. Here again, graphs would be a useful visual tool.
Baseline
You can also analyze income statement accounts by using a baseline period. The baseline period could be your budget, a break-even point, your first year of operations, any period of actual results against which you want to compare other periods; or the baseline could be industry benchmark data or the results of a similar business, such as a competitor.
The results of any period you are comparing to the baseline period would be expressed in terms of a percentage of the corresponding amount from the baseline period. By doing this type of analysis over more than one period, you can see the absolute variances in the amounts of each element of the income statement as compared to the baseline, as well as relative variances from one period to another. For example, if your baseline indicates gross profit as 40% of sales, you will be able to track, period by period, how your actual gross profit compares (whether it is higher or lower than 40%) and how it is evolving (Is it going up or down?).