14 Aug Two Discussions
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What is a common size income statement, it is the presentation of all the line items in an income statement in a separate column in the form of relative percentages of total sales primarily. It is not another type of income statement, but it is a technique used by financial managers to analyze the income statement of a company.
This technique have its advantages and disadvantages, some of the advantages are that it helps the financial user to comprehend the income statement more clearly based on percentages ratios of each individual item in the income statement. Another advantage is that help the user to determine trends of each item in the income statement. It also allows the user to compare financial performance between two entities at a quick look since everything is expressed in percentages.
Some of the disadvantages are that some financial experts believe it is impractical as there is no approved standard proportion of each item contained in the income statement. It also can become a challenge to properly compare the items in the income statement if the company change the reporting basis (Wall Street Mojo, n.d.).
| Charter Communication Common Size Income Statement | ||||||
| Period, year ended on December 31* | 2018 | 2017 | 2016 | 2018 | 2017 | 2016 |
| Total Revenue | $43,634.00 | $41,581.00 | $29,003.00 | 100.00% | 100.00% | 100.00% |
| Cost of revenue | $38,413.00 | $37,475.00 | $26,547.00 | 88.03% | 90.13% | 91.53% |
| Income from Operations | $5,221.00 | $4,106.00 | $2,456.00 | 11.97% | 9.87% | 8.47% |
| Other expenses | $3,535.00 | $3,078.00 | $1,636.00 | 67.71% | 74.96% | 66.61% |
| Income before income taxes | $1,686.00 | $1,028.00 | $820.00 | 47.69% | 33.40% | 50.12% |
| Income Tax Benefit (expense) | -$180.00 | $9,087.00 | $2,925.00 | -10.68% | 883.95% | 356.71% |
| Consolidated Net Income | $1,506.00 | $10,115.00 | $3,745.00 | 3.45% | 24.33% | 12.91% |
| Less Net income attribute to non-controlling interest | -$276.00 | -$220.00 | -$223.00 | -18.33% | -2.17% | -5.95% |
| Net Income to Charter Shareholders | $1,230.00 | $9,895.00 | $3,522.00 | 2.82% | 23.80% | 12.14% |
| * In Millions |
(Charter Communications, 2018)
Some of the trends that can be identified at a glance are how the cost of revenue percentage decreased from 2016 to 2018, while in direct relation the operational income increase from 2016 to 2018. The income tax benefit (expense) showed drastic fluctuations which need to be further analyze to understand where it comes from since it has a direct impact on the net incomes to the shareholders.
According to the opinion of the auditors of Ernst & Young LLP, the financial statements fairly show the financial position of Motorcar Parts of America. The consolidated financial statements reflect the results and cash flows of the last three fiscal years of the company. Although the Income Statement shows a tendency to increase revenues, sales costs are growing in a larger proportion. In 2019, sales costs represented 81.14% of net sales while in 2017 and 2016 this indicator is shown at 74.97 and 72.30 percent. The same goes for all items of operational costs. Each of these elements directly influences the net operating income reflected in the negative trend of net income. On the other hand, administrative expenses have also had a negative trend because their specific value in relation to sales increases year after year (MOTORCAR PARTS OF AMERICA, INC., 2019. F-2).
According to the annual report, one of the factors that has affected the company refers to currency fluctuations in those countries where they operate. It is said that in 2019, 16% of total expenses were paid with those currencies. One of these countries is China where the largest number of MPA providers is located. To mitigate the risks, the company entered into forward foreign exchange contracts to exchange US dollars to the Chinese yuan (MOTORCAR PARTS OF AMERICA, INC., 2019.
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