Select Page

Common Size Statement and Comparative Balance Sheet are both financial analysis tools that help in understanding a company’s financial position and performance over time. Here’s an overview of each:

  1. Common Size Statement:
    • A Common Size Statement, also known as a Vertical Analysis, expresses each line item of the financial statements as a percentage of a base figure, typically total assets for the balance sheet and total revenue for the income statement.
    • The purpose of a Common Size Statement is to highlight the relative size and composition of different components of the financial statements, allowing for easier comparison between companies of different sizes or within the same company over different periods.
    • For example, in a Common Size Balance Sheet, each asset, liability, and equity item is expressed as a percentage of total assets. Similarly, in a Common Size Income Statement, each revenue, expense, and profit item is expressed as a percentage of total revenue.
    • Analyzing Common Size Statements helps in identifying trends, outliers, and areas of concern or strength within a company’s financial statements. It provides insights into the relative importance of different components and their contribution to overall financial performance.
  2. Comparative Balance Sheet:
    • A Comparative Balance Sheet presents the balance sheet of a company for multiple periods, typically two or more years, side by side for comparison.
    • The purpose of a Comparative Balance Sheet is to highlight changes in the company’s financial position over time, including changes in assets, liabilities, and equity.
    • By comparing balance sheets for different periods, analysts can assess trends, identify areas of growth or decline, and evaluate the company’s financial stability and performance.
    • Changes in individual line items, as well as changes in the overall structure of the balance sheet, can provide valuable insights into the company’s strategic decisions, financial management practices, and business operations.

 both Common Size Statements and Comparative Balance Sheets are valuable tools for financial analysis, providing different perspectives on a company’s financial position and performance. Common Size Statements facilitate comparisons between different components of the financial statements, while Comparative Balance Sheets allow for analysis of changes over time. Used together, these tools can provide a comprehensive understanding of a company’s financial health and help in making informed decisions.