Common-Size Financial Statements

An easy way to spot trends in your balance sheet and income statement data from a number of years, or to compare your information with that of another company or industry group, is to use "common size" financial statements.

To create common size statements, you simply take the information from your regular statements, and express it as percentages rather than as absolute dollars. This makes it much easier to pinpoint differences from year to year, and to compare your data with that of one or more companies that may be considerably larger or smaller than yours. Moreover, if you get industry data or financial data on your competitors from a commercial service, the best way to compare the data is to express all financials in the common-size, percentage, format.

Here's an example of an income statement that shows both absolute dollar values for four years, and also common size percentages for the same four years. Note that all items on the common size part of the statement are expressed in terms of a percentage of sales. To arrive at the common size percentage for an item, we simply divided the dollar value of that item by the dollar value of sales for the period.

Dollars, in Thousands					Common Size Percentage
1	2	3	4	Years	1	2	3	4
$525	$595	$630	$724	Sales	100	100	100	100
158	190	208	217	Gross Margin	30	32	33	30
79	95	95	101	Selling Expenses	15	16	15	14
31	31	32	32	General & Administrative	6	5	5	4
$ 48	$ 64	$ 81	$ 84	Operating Income	9	11	13	12
6	6	6	8	Interest	1	1	1	1
$ 42	$ 58	$ 75	$ 76	Pretax Income	8	10	12	10
14	20	26	26	Federal Income Tax	3	3	4	4
$ 28	$ 38	$ 49	$ 50	Net Income	5	6	8	7

Here's an example of a balance sheet that shows both absolute dollar values for four years, and common-size percentages for the same four years. Notice that items normally appearing on the asset side of the balance sheet are presented as a percentage of total assets. Items normally on the liabilities and equity side of the sheet are presented as a percentage of total liabilities and equity.

Dollars, in Thousands					Common Size Percentage
1	2	3	4	Years	1	2	3	4
$ 50	$ 40	$ 45	$ 70	Cash	6	4	5	7
230	250	175	225	Accounts Receivable	26	27	19	22
175	180	195	185	Inventory	20	19	21	18
10	15	10	310	Other Current Assets	1	2	1	1
$465	$485	$425	$490	Total Current Assets	53	52	46	48
400	425	500	515	Plant & Equip.	45	46	54	51
15	20	5	10	Other Non-Current Assets	2	2	1	1
$880	$930	$930	$1015	Total Assets	100	100	100	100
200	225	220	210	Accounts Payable	23	24	24	21
50	45	20	80	Bank Debt	6	5	2	8
$ 250	$ 270	$ 240	$ 290	Total Current Liabilities	28	29	26	29
150	100	60	250	Long-Term Debt	17	11	6	25
$ 400	$ 370	$ 300	$ 540	Total Liabilities	45	43	32	53
480	560	630	475	Owner's Equity	54	52	68	47
$ 880	$ 930	$ 930	$ 1015	Total Liabilities & Equity	100	100	100	100