Vertical Analysis of an Income Statement
A condensed income statement for Southwest Airlines and a partially completed vertical analysis are presented below.
| SOUTHWEST AIRLINES Income Statement (summarized) For the Year Ended December 31 (in millions of U.S. dollars) | ||||
| 2008 | 2007 | |||
Sales Revenues | $11,023 | 100% | $9,861 | 100% | |
Salaries, Wages, and Benefits | 3,340 | 30 | 3,213 | (d) | |
Fuel, Oil, Repairs, and Maintenance | 4,434 | (a) | 3,306 | 33 | |
Other Operating Expenses | 2,800 | (b) | 2,551 | 26 | |
Other Expenses (Revenues) | 171 | 2 | (267) | (3) | |
Income before Income Tax Expense | 278 | 3 | 1,058 | (e) | |
Income Tax Expense | 100 | 1 | 413 | 4 | |
Net Income | $178 | (c)% | $ 645 | (f)% | |
Required:
1. Complete the vertical analysis by computing each line item (a)–(f) as a percentage of sales revenues. Round to the nearest whole percentage.
2. Does the percentage that you calculated in 1(a) suggest that Southwest tried to increase its profit by cutting repairs and maintenance costs in 2008 compared to 2007?
3. Refer to the percentages that you calculated in 1(c) and (f). Is Southwest’s net profit margin improving, or declining?
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