Common Size Analysis


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Common Size Analysis

  1. 1. Common Size Analysis<br />By:-<br />Nishant Singh(91039)<br />BishnuChettri(91012)<br />LakshmiSravani (91028) <br />MadhusudanPartani(91029)<br />Harsh Agrawal(91022) <br />AshutoshKunarJha(91011)<br />
  2. 2. WHY??<br />How much revenue did the company book in order to achieve those earnings? <br />How much did competitors of a similar size earn? <br />How much did the company earn last year? <br />
  3. 3. WHAT??<br />Common size analysis is one tool to compare companies across time and with other companies.<br />Three Types:<br />Vertical Common Size Income Statements <br />Horizontal Common Size Income Statements <br />Common Size Balance Sheets<br />
  4. 4. Basic Understanding<br />
  5. 5. Comparing Performance of Companies<br />To compare companies of different sizes<br />Helps in benchmarking<br />Industry comparison<br />Quick overview of where the firm stands in the industry<br />
  6. 6. A Case<br />For example<br />This comparison is somewhat misleading because of the different size of the two companies. <br />
  7. 7. Alternative<br />For better comparison, the net income figures can be expressed as a percentage of the sales revenues of each company<br />
  8. 8. Basic Concepts <br />Generally Net Sales are taken as base in the income statement<br />Gross sales are not taken<br />Excise duty is deducted from gross sales, net sales gives the right picture.<br />Common size analysis helps us to calculate the expenses as a percentage of revenue.<br />Total assets=Total liabilities is taken as the base in Balance sheet.<br />
  9. 9. Common Size Income Statement<br />
  10. 10. Analysis<br />Material cost has increased by 6%. Though the figure has doubled. It is because of inflation or inadequate use of resources.<br />Income from other sources has initiated this year.<br />PBDIT has decreased by 3% because of increase in material cost.<br />Exceptional expenses zeroed this year as there was no expenditure on sports infrastructure.<br /> Deferred tax has decreased because of cancellation of revaluation of foreign currency loans and decrease in difference between book and tax depreciation.<br />
  11. 11. Common Size Balance Sheet<br />
  12. 12. Continued….<br />
  13. 13. Analysis<br />Proportion of share capital and reserves and surplus has reduced due to an increase in unsecured loans.<br />Investments has increased drastically.<br />Unsecured loans has seen a significant change of 9%.<br />Cash and bank balances has increased. This shows that the company is improving its liquidity position.<br />Loans and advances has drastically decreased.<br />Total assets have increased due to increase in investments.<br />
  14. 14. Limitations<br />Different accounting principles may be used by different firms. So adjustment need to be made.<br />Firms may use different accounting calenders.<br />Diversified companies are difficult to classify for comparison purposes.<br />Financial data is not adjusted for price changes or inflation/deflation.<br />Jugdement cannot be based on this analysis only. Other sources of data should also be analyzed.<br />
  15. 15. Thank You<br />