Vertical analysis

Vertical analysis is a tool that consists of the study of a single financial statement in
which each item is expressed as a percentage of a significant total. The use of vertical
analysis is especially helpful in analyzing income statement data such as the
percentage of cost of goods sold to sales. (Hermanson, Edwards and Salmonson 1989,
781).

X  Vertical Analysis of the income statement  

Names 2016 2017 2018 2019
Revenue 106.6% 106.6% 107.1% 107.4%
Cost of Sales 100.0% 100.0% 100.0% 100.0%
Gross profit 6.6% 6.6% 7.1% 7.4%
Administrative expenses 3.9% 4.9% 5.3% 6.4%
Other income 0.5% 0.9% 0.2% 0.1%
Operating profit 3.2% 2.6% 1.9% 1.2%
Finance income 0.1% 0.1% 0.1% 0.1%
Finance costs 0.8% 0.6% 0.5% 0.4%
Share of post-tax profit from joint 0.0% 0.2% 0.0% 0.0%
ventures and associates
Profit before tax 2.5% 2.0% 1.5% 0.9%

Income tax expense 0.3% 0.5% 0.4% 0.1%

Profit for the financial year 2.1% 1.5% 1.2% 0.8%

From the vertical analysis of income statement, it is seen that Sainbury made its profit
by selling its products and services (100%), which means the company had more
revenues from sold goods during the analyzed years. Due to increase of wages and
salaries, staff costs increased and it made 22.6 of net sales. Since the beginning of the
analyzing years, the proportion of products consumption has increased gradually.
Although income tax increased in 2008, the proportion of net profit increased from
previous years. It made 20.10 per cent of net sales, which is highest performance
among the four accounting periods. Moreover, financial profit was positive in 2005, and
it filled 1.87 per cent of the sales, while other three years had negative performance.