Common-size Financial Statements
Financial statements where items are expressed as percentages of a base figure, facilitating comparisons between companies of different sizes and over time.
Common-size Financial Statements
Financial statements where all items are expressed as percentages of a base figure, facilitating analysis of proportional relationships and trends. On the balance sheet, items are shown as percentages of total assets, while income statement items are expressed as percentages of net sales.
For example, a retailer’s common-size income statement might show cost of goods sold at 60% of sales, operating expenses at 25%, and net income at 15%, making it easy to compare profitability metrics with industry averages regardless of company size.
Common-size analysis removes the effect of scale, enabling more meaningful comparisons between companies of different sizes or the same company across different periods. This technique reveals structural changes and relative performance that might be obscured by absolute numbers.