Question

Alpha Manufacturing has interest expense of $12 million, total assets of $184 million, sales of $176 million, long-term debt of $16.4 million, and net income of $15 million. How will interest expense be recorded in the common-size income statement?

Answer 1

Answer:

0.068

Explanation:

Common size income statement in which we divide all the items with it's revenue. So, interest is $12 M, and sales is $176 M.

Dividing 12/176= 0.068

That means the interest is 6.8% of revenue. Common size is used for comparison purpose. If let's say in next year interest become 15% of revenue then company would know that it's using more debt. It's also used for comparing with competitors.