Definition of common size financial statements


What is a common size financial statement?

A common-sized financial statement displays items as a percentage of a common baseline figure, such as total revenue. This type of financial statement allows easy analysis between companies, or between periods, for the same company. However, if companies use different accounting methods, any comparison may not be exact.

Key points to remember

  • A common-sized financial statement displays entries as a percentage of a common base number rather than as absolute numbers.
  • Common size statements allow analysts to compare companies of different sizes, in different industries or across time, from apple to apple.
  • Financial statements of current size generally include the income statement, balance sheet and statement of cash flows.

Common size financial statements

Understanding Common-Size Financial Statements

Although most companies do not report their returns in a common size format, it is beneficial for analysts to do so when comparing two or more companies of different sizes or from different sectors of the economy. Formatting financial statements in this way reduces any bias that can arise and allows analysis of a business over different time periods. This analysis reveals, for example, what percentage of sales is cost of goods sold and how that value has changed over time. Financial statements of current size generally include the income statement, balance sheet and statement of cash flows.

Common-sized financial statements reduce all numbers to a comparable number, such as a percentage of sales or assets. Each financial statement uses a slightly different convention in standardizing the numbers.

Common-sized financial statements make it easier to determine what drives a company’s bottom line and compare the company to similar companies.

Common size assessment

The balance sheet provides a snapshot of the assets, liabilities and equity of the business for the reference period. A balance sheet of common size is drawn up with the same logic as the income statement of common size. The balance sheet equation is that assets equals liabilities plus equity.

The balance sheet thus represents a percentage of assets. Another version of the common size balance sheet shows asset items as a percentage of total assets, liabilities as a percentage of total liabilities, and equity as a percentage of total equity.

Common Size Cash Flow Statement

The cash flow statement provides an overview of the sources and uses of the company’s cash. The cash flow statement is divided into cash flow from operations, cash flow from investing and cash flow from financing. Each section provides additional information on the sources and uses of cash in each business activity.

A version of the cash flow statement of common size expresses all items as a percentage of total cash. The most popular version expresses cash flows in terms of total operating cash flows for items in operating cash flow, total investing cash flow for cash flow from investing activities and total cash flow from financing for cash flow from financing activities.

Common size income statement

The income statement (also called the income statement (P&L)) provides an overview of the flow of sales, expenses and net income during the reference period. The income statement equation is revenue less expenses and adjustments equal to net income. This is why the income statement of common size defines all items as a percentage of Sales. The term “common size” is most often used when analyzing income statement items, but the balance sheet and cash flow statement can also be expressed as a common size statement.

Concrete example of an income statement of common size

For example, if a business has a simple income statement with gross sales of $ 100,000, cost of goods sold of $ 50,000, taxes of $ 1,000, and net income of $ 49,000, the size statement common would read as follows:

Sales 1.00
Cost of goods sold 0.50
Taxes 0.01
Net revenue 0.49


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