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Common-Size
  Analysis

 Strictly Financials


      Jan. 2, 2013
Donald W. Reynolds National Center
    for Business Journalism
   at Arizona State University




           Strictly Financials
                                     2
n    James K. Gentry, Ph.D.
n    Clyde M. Reed Teaching Professor
n    School of Journalism and Mass Communications
n    University of Kansas
n    jgentry@ku.edu




                     Strictly Financials
                                                     3
Common-Size Analysis
n    A technique that turns all financial
      statement entries into percentage of
      revenue
n    Then can look at percentage change
      and percentage-point change




                  Strictly Financials
                                             4
Why Common Size?
n    Identify trends
n    Identify what causes changes in totals
      on financial statements
n    Easier to compare percentages than
      raw numbers
n    Easier to compare companies
n    Easier to compare company with
      industry averages
                  Strictly Financials
                                               5
Doing Common Size
n    For IS, divide Revenue into all entries.
n    For BS, divide each total category into
      its category items. For example, divide
      Total Assets into each category of
      assets.
n    For CF, divide each total category into
      its category items.

                  Strictly Financials
                                             6
Comparable Statements
n    Often have to restructure Income
      Statement to the In-the-Box format we
      have studied
n    Typical problems come from items we
      would consider Other Income/Expenses




                 Strictly Financials
                                         7
Trends in Margins
n    How have Cost of Goods Sold (CGS)
      and Sales, General and Administrative
      (SGA) changed?
n    What does that mean for Gross Profit
      Margin and Operating Profit Margin?
n    How does Net Profit Margin move?
n    Importance of using Basis Points

                  Strictly Financials
                                          8
Common Size, Ratios
n    These techniques let you drill below the
      surface and start developing a more
      complete picture of the company’s
      performance
      n    Strengths
      n    Weaknesses
      n    Strategic effectiveness of the firm


                        Strictly Financials
                                                  9

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"Common Size Analysis" by Jimmy Gentry

  • 1. Common-Size Analysis Strictly Financials Jan. 2, 2013
  • 2. Donald W. Reynolds National Center for Business Journalism at Arizona State University Strictly Financials 2
  • 3. n  James K. Gentry, Ph.D. n  Clyde M. Reed Teaching Professor n  School of Journalism and Mass Communications n  University of Kansas n  jgentry@ku.edu Strictly Financials 3
  • 4. Common-Size Analysis n  A technique that turns all financial statement entries into percentage of revenue n  Then can look at percentage change and percentage-point change Strictly Financials 4
  • 5. Why Common Size? n  Identify trends n  Identify what causes changes in totals on financial statements n  Easier to compare percentages than raw numbers n  Easier to compare companies n  Easier to compare company with industry averages Strictly Financials 5
  • 6. Doing Common Size n  For IS, divide Revenue into all entries. n  For BS, divide each total category into its category items. For example, divide Total Assets into each category of assets. n  For CF, divide each total category into its category items. Strictly Financials 6
  • 7. Comparable Statements n  Often have to restructure Income Statement to the In-the-Box format we have studied n  Typical problems come from items we would consider Other Income/Expenses Strictly Financials 7
  • 8. Trends in Margins n  How have Cost of Goods Sold (CGS) and Sales, General and Administrative (SGA) changed? n  What does that mean for Gross Profit Margin and Operating Profit Margin? n  How does Net Profit Margin move? n  Importance of using Basis Points Strictly Financials 8
  • 9. Common Size, Ratios n  These techniques let you drill below the surface and start developing a more complete picture of the company’s performance n  Strengths n  Weaknesses n  Strategic effectiveness of the firm Strictly Financials 9