# How to Calculate Percentages of Total Revenues

### Calculating percentages of total revenues is a powerful technique for analyzing companies' operating performance.

Jan 12, 2016 at 12:28AM

For anyone who is interested in analyzing and assessing a company's performance, calculating percentages of total revenues -- or using the percentages that have been calculated for you -- can be very useful. In the following article, we'll take a look at how and why an investor calculates percentages of total revenues.

First, why would you want to calculate percentages of total revenues?
Let's imagine that you want to compare the profitability of wearable fitness device-maker Fitbit Inc and Apple:

• During the trailing-12-month period to Sept. 26, 2015, Apple generated an operating income of \$71.2 billion.
• During the trailing 12 months to Sept. 30, 2015, Fitbit generated an operating income of \$310.7 million.

On seeing those figures, you might conclude your analysis with the following observation: "Apple's operating profit exceeds that of Fitbit by a factor of 229 (= \$71,230/ \$310.7). I guess that settles the matter of who is more profitable."

Observing the difference in magnitude between the two numbers is not altogether uninteresting, but you're bound to feel that such an analysis is incomplete. We understand immediately that the difference between the two dollar amounts owes more to the difference in size between the two companies than to their profitability, per se.

How to calculate percentages of total revenues
Scaling each company's operating profits to its revenues allows us to make a better like-for-like comparison with regard to company profitability. In fact, when we think of profitability, one of the first notions that comes to mind is that of profit margin, which is nothing other than that dollar amount of profits expressed as a percentage of total revenues:

Operating profit margin (%) = Operating profit / Total revenues

In this case, we obtain:

Apple's operating profit margin = \$71,230 / \$233,715 = 30.5%

Fitbit's operating profit margin = \$310.7 / \$1,516.6 = 20.5%

We now see that, even as a percentage of revenues, Apple is more profitable than Fitbit, and on the basis of operating profits, we could also compare the percentages for net profits. A simpler way to say this: Apple's operating profit margin is higher than Fitbit's (by half!).

If we want to dig down to try to understand how Apple achieved that higher margin, we might want to compare different categories of cost for the two companies, such as cost of goods sold, or selling, general, and administrative costs (SG&A).

If we look at absolute dollar amounts, we'll run into the same problem as we previously did: Apple's trailing 12-month cost of goods and services was \$140.1 billion; Fitbit's was \$793 million. Comparing those two figures doesn't tell us very much.

You can start to see why analysts often use what is known as a common size income statement, in which every item on the income statement is expressed as a percentage of total revenues. The common size income statement is a very powerful tool.

The following table, which is part of a valuation analysis that Hanover Foods Corporation filed with the SEC, shows that, in addition to facilitating comparisons between companies, the common size income statement is also useful for comparing a single company's performance over time:

Source: Securities and Exchange Commission.

You can see that calculating percentages of total revenues is a powerful analytical technique in the fundamental analysis of companies. In practice, analysts rarely perform the calculations themselves, as any data provider worth its salt will provide those percentages.

For example, the following screen shot shows that Morningstar enables you to toggle between a standard income statement with amounts expressed in dollars -- or rather millions of dollars -- or a common size income statement:

Source: Morningstar.

The \$15,978 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra \$10 billion annually. For example: one easy, 17-minute trick could pay you as much as \$15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

The Motley Fool owns shares of and recommends Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

# Money to your ears - A great FREE investing resource for you

### The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

## Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.