Common size income statement

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What is a Common Size Income Statement?

A common size income statement is an income statement in which each line item is reported as a percentage of net sales. The actual numbers may be reported adjacent to the percentages. This arrangement is used to examine changes in the percentages from period to period for financial analysis purposes. The format can also be used to compare expense percentages across different entities within the same industry.

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Advantages of a Common Size Income Statement

There are several advantages to using common size income statements, which are as follows:

  • When raw data is not useful. A common size income statement is quite useful when it is too difficult to extract meaningful information from the raw data.

  • When multiple periods are available. The common size format is useful for spotting trends in revenue and expense levels over an extended period of time, which may result in actionable information for management.

  • Percentages are easier to review. It is generally easier to interpret percentages than raw data, especially when you are reviewing data for many line items that span a number of reporting periods.