The document discusses common-size financial statements, which express all items in a statement as a percentage of a common item. Specifically: - In a common-size income statement, total sales is set at 100% and all other items are shown as a percentage of sales. - In a common-size balance sheet, total assets is set at 100% and asset items are shown as a percentage of total assets, while liabilities items are shown as a percentage of total liabilities. - Two examples are provided to illustrate how to construct common-size income statements and balance sheets from raw financial data, and analyze the percentages to evaluate a company's performance over time.

1. Dr.E.RAMAPRABA,
ASSISTANT PROFESSOR OF COMMERCE
BON SECOURS COLLEGE FOR WOMEN,
THANJAVUR.
COMMON – SIZE STATEMENT
Meaning
1. In financial statement, namely common-size income statement (i.e. common –
size profit and loss account) and common – size position statement (i.e. common
– size balance sheet) certain items are taken as common items and every
component item is exposed as a percentage of that common item.
2. For example, in the case of common- size income statement, the total sales is
taken as 100 and all other component items of such income statement are
expressed as a percentage to sales.
3. Further, in the case of common – size position statement, the total assets is taken
as 100 and all other component items of assets side of the balance sheet are
expressed as a percentage to that total.
4. So also each individual item of capital and liabilities is expressed as a percentage
to the total liabilities which is taken as 100 in common- size statements.
5. As the total sales the total assets and the total liabilities are taken as 100
percentage and every other individual item is expressed as a percentage to the
total sales, total assets and total liabilities, common – size statements are also
known as 100 percent statements.
6. Further, as every component item is expressed as a percentage to total (i.e) total
sales, total assets and total liabilities, common-size statements are also called
component percentage statements.
NOTE:
The two common- size statements are:
(i) Common – size income statement (common – size profit and loss account)
(ii) Common – size position statement (Balance sheet)
Common –Size Income Statement

2. In common- size income statement, the total sales figure is assumed be 100 and all other
items (figures) pertaining to the income statement are expressed as a percentage to this total.
As all other component items of income statement are compared with the total sale and
expressed as a percentage to total sales, a significant relationship can be established between
every component item of income statement such as purchases, wages, salaries, advertisements
and the like and the total sales, evaluating operational activities becomes easier and operational
efficiency of a concern can be easily arrived at and eventually desired operational decision could
be taken easily and efficiently.
Common – size income statement (i.e. common – size profit and loss account) is also
known as 100 percent income statement.
Following are the income statements of a company for the year ending December 31st
2009 and 2010.
2009
Rs.
2010
Rs.
Operating income:Sales 10,00,000 14,00,000
Non-Operative Income 40,000 30,000
10,40,000 14,30,000
Expenses:
Cost of sales 6,50,000 10,20,000
Administrative Expenses 40,000 50,000
Selling and Distribution Expenses 60,000 90,000
Non- operating expenses 50,000 60,000
8,00,000 12,20,000
Net profit
2,40,000 2,10,000
10,40,000 14,30,000
Solution:
Common-size income statement for the year ending 31st
December 2009 and 2010.
Base :Total Sales
Analysis: Vertical
Particulars 2009
Rs.
% 2010
Rs.
%
1.Operating Income
Sales 10,00,000 100.00 14,00,000 100.00
Less: Cost of Sales 6,50,000 65.00 10,20,000

3. Total Oper Income/ Gross profit (A)
2.Operating Expenses
3,50,000 35.00 3,80,000
Administrative Expenses 40,000 4.00 50,000
Selling and Distribution Expenses 60,000 6.00 90,000
Total Operating Expenses (B) 1,00,000 10.00 1,40,000
Operating Profit ( C=A-B ) 2,50,000 25.00 2,40,000
3. Operating Income
Non – Operating income 40,000 4.00 30,000
Total Non – Operating income (D)
Total Operating Profit E=C+D
40,000 4.00 30,000
290000 29.00 270000
4.Non – operating expenses 50,000 5.00 60,000
Total Non – operating expenses (F)
Net Profit (G=E-F)
50,000 5.00 60,000
240000 24.00 210000
Interpretation
1. Though sales and gross profit have increased in 2009 compared to 2010, the
percentage of gross profit has come down from 35% to 27.15%
2. The increase in cost of sales as a percentage of sales from 65% to 72.86% has brought
down the profitability (i.e. gross profit to sales) from 35% to 27.14%
3. The amount of net profit and also the percentage of net profit to sales come down from
Rs.2,40,000 to Rs.2,10,000 and 24% to 15% respectively.
In nutshell, the company should take immediate necessary steps to control its cost of
sales in order to increase its profitability. If not, the company’s profitability in relation to sales
may still be reduced and eventually the company will be landed in trouble.
Common – Size Position Statement.
A position statement in which each asset item is expressed as a percentage to total assets
and each liability item is expressed as a percentage to total liabilities is called common-size
position statement.
It is also known as common-size balance sheet.

4. Illustration
From the following balance sheets for the years ended 31st
of December 2007 and 2008,
prepare a common – size balance sheet and comment upon the financial position.
Assets
2007
Rs.
2008
Rs.
Cash 54,000 63,000
Debtors 4,40,000 4,22,000
Stock 2,00,000 2,52,000
Prepaid Expenses 22,000 42,000
Bills Receivables 20,000 21,000
Fixed Assets 12,70,000 13,00,000
Total Assets 20,06,000 21,00,000
Liabilities & Capital:
Share Capital 13,16,000 14,00,000
Long-Term Debt 4,50,000 4,00,000
Sundry Creditors 84,000 1,00,000
Other Liabilities 1,56,000 2,00,000
Total Liabilities & Capital 20,06,000 21,00,000
Solution:
Common –Size Balance Sheet the years ended 31st
December 2007 and 2008
Base(100%) : Total Assets & Liabilities
Assets Rs. % Rs. %
1.Current Assets:
Cash 54,000 2.70 63,000
Debtors 4,40,000 21.90 4,22,000
Stock 2,00,000 10.00 2,52,000
Repair Expenses 22,000 1.10 42,000
Bills Receivable 20,000 1.00 21,000
Total Current Assets 7,36,000 36.70 8,06,000 38.10
Fixed Assets 12,70,000 63.30 13,00,000 61.90
Total Assets 20,06,000 100.00 21,00,000 100.00
Liabilities & Capital
Current liabilities:
Sundry creditors 84,000 4.20 1,00,000
Other liabilities 1,56,000 7.80 2,00,000

5. Total Current Liabilities 2,40,000 12.00 3,00,000
Long-Term Liabilities
Long- Term Dept 4,50,000 22.40 4,00,000
Total Liabilities 6,90,000 34.40 7,00,000 33.30
Capital Reserves: Share Capital 13,16,000 65.60 14,00,000 66.70
Total Liabilities &Capital 20,06,000 100.00 21,00,000 100.00
Comments:
1. Percentage of current assets to the total assets has been just improved from 36.70% to
38.10% in 2008. Nevertheless, percentage of fixed assets to the total assets has been
reduced to 61.90% in 2008 from 63.30%.
2. It is inferred that the percentage of current liabilities to the total liabilities and capital
has been increased from 12.00% to 14.30% in 2008. However, the percentage of
long-term debt to the total liabilities and capital has been reduced to 19.00% in 2008
from 22.40%.
3. The percentage of total liabilities to the total liabilities and capital has been slightly
reduced to 33.30% in 2008 from 34.40%.