Baseline-7

You can also analyze income statement accounts by using a baseline period.  The baseline period could be your budget, a break-even point, your first year of operations, any period of actual results against which you want to compare other periods; or the baseline could be industry benchmark data or the results of a similar business, such as a competitor.

The results of any period you are comparing to the baseline period would be expressed in terms of a percentage of the corresponding amount from the baseline period.  By doing this type of analysis over more than one period, you can see the absolute variances in the amounts of each element of the income statement as compared to the baseline, as well as relative variances from one period to another.  For example, if your baseline indicates gross profit as 40% of sales, you will be able to track, period by period, how your actual gross profit compares (whether it is higher or lower than 40%) and how it is evolving (Is it going up or down?).