From the course: Running a Profitable Business: Understanding Financial Ratios

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Target's common-size income statement

Target's common-size income statement

From the course: Running a Profitable Business: Understanding Financial Ratios

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Target's common-size income statement

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- So we've used common size financial statements to analyze Uncertain company, but will this same technique work with a real company? A real company, like Target. Let's take a look at Target's income statement. Now you see the income statement here in front of you. This is good, we've got three years' worth of data, and that's nice. You can kind of see sales going up, sales going down. Three years of side-by-side data are nice, but it would be really nice to know why is income so much lower in 2013. We can get huge insights, very efficiently, just by constructing a common size income statement for Target. How do we do that again? Just divide everything in the income statement by sales for that year. And we see down at the bottom, in 2013, net income as a percentage of sales, 2.7%. We've seen that before. We call that return on sales. In 2012, that same number is 4.1%. Why is it so much lower in 2013? The common…

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