Common Size Financial StatementsDefined with Examples

Written By:
Lisa Borga

What are Common Size Financial Statements?

A common size financial statement presents numbers as a percentage of a base number, such as sales revenue.

Using this type of financial statement can make it easier for investors to compare two different companies or even two different periods for the same company.

Although if the different companies use different accounting methods, this may not be as effective.

Using Common Size Financial Statements

Common size financial statements are not used for financial reporting purposes.

However, they are useful for analysts or investors who want to compare different companies to each other or to compare the same company in different financial periods.

This is particularly useful for comparing businesses of different sizes or for trying to identify problems in a business early on.

These statements allow a business to look at how the percentages of certain items, such as the cost of goods sold, have changed over time.

Therefore, if there is a problem, a business can start to try to address it.

Common size analysis can be used for the income statement, cash flow statement, and balance sheet.

Common Size Cash Flow Statement

A cash flow statement shows the source of a business’s cash and how the business uses its cash.

The statement provides information about how the business used its cash in three different parts of the business: operations, investing, and financing.

These sections then provide the details about the sources of cash and how the cash was used in each of these different parts of the business.

There are two different ways in which the line items on the cash flow statement are presented as a percentage of a base number.

In some cash flow statements, the items are all presented as a percentage of total cash flow.

Whereas in other cash flow statements, the items in the operating section are presented as a percentage of overall operating cash flow, the items in the investing section are presented as a percentage of overall investment cash flow, and the items in the financing section are presented as a percentage of overall financing cash flow.

Common Size Balance Sheet

A balance sheet shows the assets, liabilities, and stockholders’ equity at a certain point in time.

Common size balance sheets are set up similar to common size income statements, but instead of showing line items as a percentage of sales, they are shown as a percentage of total assets.

The common size balance sheet allows a company to compare its assets to its liabilities.

This can be useful for a company if they hope to obtain a business loan.

A low liability-to-asset ratio can help show that a business is capable of handling a loan.

Common Size Income Statement

A business’s income statement shows its sales and expenses, as well as its net income during a specified accounting period.

The income statement takes a business’s sales and subtracts out the expenses along with any adjustments to determine the net income.

This is why the common size income statement uses sales as the base number and expresses other items as a percentage of this number.

Common Size Financial Statement Example

An example of this would be a company with a sales revenue of $150,000, cost of goods sold totaling $75,000, and taxes of $2,000.

Key Highlights

• Common size financial statements present line items as a percentage of an overall base figure instead of using absolute numbers.
• Common size financial statements allow analysts or investors to compare different companies or the same company in different periods by expressing items as a percentage of a base.
• Cash flow statements, income statements, and balance sheets are the most common statements presented as common size financial statements.