The document explains common size analysis, a technique that converts financial statement entries into percentages of revenue, facilitating trend identification and comparisons among companies and industry averages. It outlines methods for creating common size statements across income, balance sheets, and cash flow statements, emphasizing the importance of margins and financial ratios. The analysis aids in understanding a firm's performance by examining strengths, weaknesses, and strategic effectiveness.

1. Common Size
Analysis
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Jan. 2, 2014

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