Fundamentals of Financial Analysis

Complete No Name
1 Common Size Balance Sheet
2 Common Size Income Statement
Chapter: 9 Fundamentals of Financial Analysis

Section: 3 Common Size Analysis

In common size analysis the financial statements are converted into a comparable format where all balance sheet accounts are expressed as a percentage of total assets and all income statement items are expressed as a percentage of net sales. This conversion facilitates comparison and meaningful analysis of absolute figures which are otherwise less self-explanatory.

 

It is a form of ratio analysis in which companies’ financial statements accounts are compared to sales and total assets. These statements are also used to compare the results with industry trends. Generally, in common size analysis a number of years financials are converted into common size and a comparison is carried out across the years.  

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