How To Calculate Net Income Using Vertical Analysis

Vertical analysis is a powerful tool for financial analysis that helps understand the structure of a company’s income statement. Calculating net income using vertical analysis is crucial for assessing a company’s profitability and sustainability.

1. Enter the company’s revenue in the ‘Revenue’ field.
2. Enter the company’s total expenses in the ‘Total Expenses’ field.
3. Enter the company’s tax rate in the ‘Tax Rate (%)’ field.
4. Click the ‘Calculate’ button.

Net income is calculated as follows:

Net Income = Revenue – Total Expenses – (Revenue * Tax Rate)

Vertical analysis expresses each item as a percentage of the base amount (usually revenue).

Comparison of Net Income Calculation Methods

Company	Revenue	Total Expenses	Tax Rate (%)	Net Income (Horizontal)	Net Income (Vertical)

• Always use the latest financial statements for accurate analysis.
• Consider other financial ratios for a comprehensive analysis.
• Vertical analysis is most useful for comparing companies of different sizes.

What is vertical analysis?

Vertical analysis is a method of financial analysis that expresses each item in a financial statement as a percentage of a base amount, usually the total revenue or expenses.

SEC – Understanding Financial Statements

Investopedia – Vertical Analysis

BLS – Vertical Analysis of Financial Statements