2. COMMON SIZE STATEMENT
❖ Common size financial statements are those in which figures
reported are converted into percentage to some common base for
this purpose, items of financial statements are calculated and
percentage to the total items of financial statement are calculated
and presented as percentage to the total items. Thus a common
base for comparison is provided. Each percentage shows the
relation of the individual item to the respective total.
❖ A company financial statement that displays all items as
percentages of a common base figure. This type of financial
statement allows for easy analysis between companies or between
time periods of a company.
3. OBJECTIVES OF COMMON SIZE STATEMENT
❖ To study the change in individual items of income statement
❖ To study the trend in different item of income and expenses
Types of common size financial statement
1) Common size income statement
2) Common size balance sheet
COMMON SIZE
FINANCIAL
STATEMENT
COMMON SIZE
INCOME
STATEMENT
COMMON SIZE
BALANCE
SHEET
4. FORMULA FOR COMMON SIZE
ANALYSIS
Common size financial statement analysis is computed using
the following formula
amount of individual term
Percentage of base = _________________________ * 100
amount of base item
5. COMMON SIZE INCOME STATEMENT
In common size income statement the values of all the
income statement is converted in to the percentage terms to
the common base i.e., sales which is taken as equal to
100%. It provides a common base (sales=100%) through
which we can calculate the contribution of cost and find
out their efficiency and compare a firm’s efficiency with
that of another firm of similar nature of operating activity.
6. FORMAT OF COMMON SIZE INCOME
STATEMENT
Particulars Amount
Rs. 2017
Amount
Rs.2018
2017
(%)
2018
(%)
Revenue Xxx Xxx Xxx Xxx
Cost of goods sold Xxx Xxx Xxx Xxx
Gross profit Xxx Xxx Xxx Xxx
Expenses
Office expenses Xxx Xxx Xxx Xxx
Depreciation &
Amortization
Xxx Xxx Xxx Xxx
Interest Xxx Xxx Xxx Xxx
Advertising Xxx Xxx Xxx Xxx
Total expenses Xxx Xxx Xxx Xxx
Profit before tax Xxx Xxx Xxx Xxx
Taxes Xxx Xxx Xxx xxx
Net profit Xxx Xxx Xxx Xxx
8. COMMON SIZE BALANCE SHEET
In the common size baance sheet the total balance ( total assets or
total liabilities) is taken as 100% and each element of balance
sheet is represented as a fraction of respective total. When
different periods data are represented then a trend of each element
of balance sheet can be obtained.
For example;- each element on the asset represent in the form of
percentage of total asset ( total assets = 100%) and each element
of liability represented in the form of a percentage of total
liability (total liability = 100%)
12. ADVANTAGES OF COMMON SIZE
STATEMENT
It is very easy to understand in one look
It helps to develop a time series and its analysis of each
element of financial statement
Very easy to compare inter-firm as well as intra- firm
performance and financial position with the help of common
size statement
13. LIMITATIONS OF COMMON SIZE
STATEMENT
It doesn’t depict the effect of change in the price level
of different elements like raw material, wages, etc.
which leads to increase or decrease in the cost of
goods sold(cogs) value, expenses, etc.
If accounting standards applied or methods of
accounting is changed between different years or if
these are different firms then doesn’t provide a true
comparison.
If there is huge profit or loss due to seasonal
fluctuation or business cycles then it doesn’t provide
a true comparison.
14. REFERENCES :-
BOOKS :-
Financial accounting which is written by SP. Jain
o WEBSITE :-
http://www.commonsizestatement.com/wikipedia
http://www.investopedia.commonsizestatement/