Common-size

Definition

Common-size analysis involves expressing financial statement items as a percentage of a base amount. It allows for easy comparison across periods and between companies of different sizes.

5 Must Know Facts For Your Next Test

1. Common-size income statements express each item as a percentage of total sales.
2. Common-size balance sheets express each item as a percentage of total assets.
3. It helps in identifying trends and making cross-sectional comparisons.
4. Common-size analysis is useful for benchmarking against industry standards.
5. It simplifies financial data, making it easier to understand and interpret.

Review Questions

• What does common-size analysis help you identify?
• In a common-size income statement, how is each line item expressed?
• Why is common-size analysis useful when comparing companies?

Related terms

Trend Analysis:

Evaluating changes in financial statement items over multiple periods to identify patterns.

Benchmarking:

Comparing a company's performance metrics with industry standards or best practices.

Financial Ratios:

Quantitative measures used to assess aspects of a company's performance, such as profitability or liquidity.