What is a Common Size Financial Statement?

A common size financial statement shows each line item on a financial statement as a percentage of a base figure. Most commonly, this means that each revenue, expense, and profit line item on the income statement is presented as a percentage of net sales. In addition, each asset, liability, and shareholders’ equity line item on the balance sheet is expressed as a percentage of total assets. Finally, all line items in the cash flow from operations section of the statement of cash flows are expressed as a percentage of the total cash flow from operations, while the line items in the cash flows from investing activities section are expressed as a percentage of the total cash flow from investing activities. The line items in the cash flows from financing section are expressed as a percentage of the total cash flow from financing activities.

Common Size Balance Sheet

A sample common size balance sheet appears in the following exhibit, with the percentage presentation indicated within a red box.

How to Use Common Size Financial Statements

The common size financial statement concept has two uses. First, the percentages for each line item are compared over a period of time, to discern trends that management can act upon. For example, an increase in the cost of goods sold percentage might call for changes in price points or more attention to supplier costs. Second, the financial statements of competitors can be converted into the common size format, which makes them comparable to a company's own financial statements. You can then determine how the cost structure or asset base of a competitor varies from the company's.