Percentage analysis on balance sheet
reveals the mix of balance sheet items; what percentage of total assets is
employed in current asset or fixed asset, what is the proportion of current
liabilities etc. Further one can drill down and see what is current asset mix,
what is the major component of current assets etc. The following example
illustrates a common size balance sheet of XYZ Company:
XYZ Company
Common Size Balance sheet
2000
2001
2002
2003
Assets
Current Assets
Cash and Equivalent
4.1%
3.2%
4.3%
4.9%
Marketable
Securities
2.3%
3.4%
4.6%
6.0%
Accounts Receivable
5.0%
5.2%
5.5%
5.8%
Inventories
49.6%
47.0%
43.5%
39.8%
Prepaid Expenses
1.1%
1.0%
0.9%
1.0%
Total
Current Assets
62.1%
59.8%
58.8%
57.5%
Plant, Property and Equipment
Land
1.5%
1.5%
1.5%
1.5%
Building
15.5%
16.0%
16.5%
17.6%
Equipment
19.8%
21.2%
21.9%
22.2%
Spare
Parts and Tools
1.1%
1.5%
1.3%
1.2%
Total Plant, Property and Equipment
37.9%
40.2%
41.2%
42.5%
Total Assets
100.0%
100.0%
100.0%
100.0%
Liabilities and Equity
Current Liabilities
Accounts Payables
14.5%
14.2%
13.1%
12.0%
Notes Payable
4.5%
5.0%
6.7%
8.9%
Accrued Expenses
5.3%
4.9%
5.0%
5.2%
Total Current Liabilities
24.3%
24.1%
24.8%
26.1%
Long-term Debt
Employee
Benefits
15.3%
17.8%
19.9%
22.3%
Other long-term
Loans
6.7%
6.9%
7.5%
8.0%
Total long-term Liabilities
22.0%
24.7%
27.4%
30.3%
Total Liabilities
46.3%
48.8%
52.2%
56.4%
Stockholders' Equity
Share Capital
16.0%
16.0%
16.0%
16.0%
Partners Current
Account
1.0%
1.4%
2.9%
2.5%
Retained Earnings
21.7%
17.1%
10.0%
5.2%
Plant Extension Reserve
13.0%
14.2%
16.2%
16.7%
Statutory Reserves
2.0%
2.5%
2.7%
3.2%
Total Equity
53.7%
51.2%
47.8%
43.6%
Total Equity and Liabilities
100.0%
100.0%
100.0%
100.0%
Looking at the
common size balance sheet it is obvious that the inventory constitutes a major
portion of the total assets. The second thing to notice is the declining
percentage of inventory from 49.6% to 39.8%, almost 10% reduction. This trend
can be compared to marketable securities. There is an increase in marketable
securities, which means company is shifting investment in inventory to
investment in marketable securities. There is also a gradual increase in plant,
property and equipment that is financed by other long-term debt. There is also
an increase in plant extension reserve account with a decrease in retained
earning which means the company is allocating its reserves for plant extension,
which is a good indication for future growth.
Please wait...
