Preparation of common-size financial statements

Common size statement is one in which all the items are expressed as a percentage of a base item.

Common size statements are helpful in discovering efficiencies and inefficiencies of the management by comparing:

• the statements of an individual business for two or more different periods,
• the statements of two or more different companies in the same industry,
• the statements of an individual business with the industry’s average numbers.

Example:

An example of comparative common size income statement of two companies is given below:

An example of comparative common size balance sheet of two companies is given below: