Common Size Financial Statement

What Is a Common Size Financial Statement?

A common size financial statement shows things as a percentage of a common base figure, total sales revenue, for instance. This type of financial statement takes into account simple analysis between companies, or between periods, for a similar company. Be that as it may, in the event that the companies utilize different accounting methods, any comparison may not be accurate.

Figuring out Common Size Financial Statements

While most firms don't report their statements in common size design, it is beneficial for analysts to do as such to think about at least two companies of contrasting size or various sectors of the economy. Designing financial statements in this manner reduces bias that can happen and considers the analysis of a company over different periods. This analysis uncovers, for instance, which percentage of sales is the cost of goods sold and how that value has changed over the long run. Common size financial statements commonly incorporate the income statement, balance sheet, and cash flow statement.

Common size financial statements reduce all figures to a comparable figure, like a percentage of sales or assets. Each financial statement involves a somewhat unique convention in normalizing figures.

Common size financial statements make it simpler to determine what drives a company's profits and to contrast the company with comparable businesses.

Common Size Balance Sheet Statement

The balance sheet gives a snapshot outline of the company's assets, liabilities, and investors' equity for the reporting period. A common size balance sheet is set up with a similar logic as the common size income statement. The balance sheet equation is assets equals liabilities plus investors' equity.

The balance sheet subsequently addresses a percentage of assets. One more variant of the common size balance sheet shows asset details as a percentage of total assets, liabilities as a percentage of total liabilities, and investors' equity as a percentage of total investors' equity.

Common Size Cash Flow Statement

The cash flow statement gives an outline of the company's sources and uses of cash. The cash flow statement is split between [cash flows from operations](/cash-flow-from-working activities), cash flows from investing, and cash flows from financing. Each section gives extra data about the sources and uses of cash in every business activity.

One form of the common size cash flow statement communicates all details as a percentage of total cash flow. The more famous rendition communicates cash flow in terms of total operational cash flow for things in cash flows from operations, total investing cash flows for cash flows from investing activities, and total financing cash flows for cash flows from financing activities.

Common Size Income Statement

The income statement (likewise alluded to as the profit and loss (P&L) statement) gives an outline of flows of sales, expenses, and net income during the reporting period. The income statement equation is sales minus expenses and changes equals net income. This is the reason the common size income statement characterizes all things as a percentage of sales. The term "common size" is most frequently utilized while dissecting components of the income statement, however the balance sheet and the cash flow statement can likewise be communicated as a common size statement.

True Example of a Common Size Income Statement

For instance, in the event that a company has a simple income statement with gross sales of $100,000, [cost of goods sold](/machine gear-pieces) of $50,000, taxes of $1,000 and net income of $49,000, the common size statement would peruse as follows: