A common-size statement is a financial statement that presents each line item as a percentage of a base figure, allowing for the standardized comparison and analysis of financial data across different periods, entities, or industries. By converting absolute dollar amounts into relative percentages, common-size statements facilitate the identification of trends, patterns, and relationships within and across financial statements, enabling stakeholders to assess the composition, structure, and performance of an entity’s financial position and operations. Here’s an overview of common-size statements for the income statement and balance sheet:

Common-Size Income Statement:

A common-size income statement presents each line item as a percentage of net sales or revenue, allowing for the analysis of the composition and profitability of the entity’s operations relative to its revenue.

• Formula for Common-Size Income Statement:
  • Common-Size Percentage =
    
    $\frac{\text{Line Item Amount}}{\text{Net Sales or Revenue}}\times 100\mathrm{\%}$

    Net Sales or RevenueLine Item Amount​×100%

• Example Line Items:
  • Gross Profit Margin =
    
    $\frac{\text{Gross Profit}}{\text{Net Sales}}\times 100\mathrm{\%}$

    Net SalesGross Profit​×100%

  • Operating Expenses as a Percentage of Sales =
    
    $\frac{\text{Operating Expenses}}{\text{Net Sales}}\times 100\mathrm{\%}$

    Net SalesOperating Expenses​×100%

  • Net Profit Margin =
    
    $\frac{\text{Net Profit After Tax}}{\text{Net Sales}}\times 100\mathrm{\%}$

    Net SalesNet Profit After Tax​×100%

Common-Size Balance Sheet:

A common-size balance sheet presents each line item as a percentage of total assets or total liabilities and equity, allowing for the analysis of the composition and structure of the entity’s financial position and capital structure.

• Formula for Common-Size Balance Sheet:
  • Common-Size Percentage =
    
    $\frac{\text{Line Item Amount}}{\text{Total Assets, Liabilities, or Equity}}\times 100\mathrm{\%}$

    Total Assets, Liabilities, or EquityLine Item Amount​×100%

• Example Line Items:
  • Current Assets as a Percentage of Total Assets =
    
    $\frac{\text{Current Assets}}{\text{Total Assets}}\times 100\mathrm{\%}$

    Total AssetsCurrent Assets​×100%

  • Current Liabilities as a Percentage of Total Liabilities and Equity =
    
    $\frac{\text{Current Liabilities}}{\text{Total Liabilities and Equity}}\times 100\mathrm{\%}$

    Total Liabilities and EquityCurrent Liabilities​×100%

  • Shareholders’ Equity as a Percentage of Total Assets =
    
    $\frac{\text{Shareholders’ Equity}}{\text{Total Assets}}\times 100\mathrm{\%}$

    Total AssetsShareholders’ Equity​×100%

common-size statements standardize financial data by presenting each line item as a percentage of a base figure, such as net sales for the income statement or total assets for the balance sheet, enabling stakeholders to analyze and compare the composition, structure, and performance of an entity’s financial position and operations. By utilizing common-size statements, stakeholders can identify trends, patterns, and relationships within and across financial statements, supporting informed decision-making, planning, and evaluation in a competitive and dynamic business environment.