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What are common-size financial statements?

Author:
Harold Averkamp, CPA, MBA

Common-size financial statements present the financial statement amounts as a percentage of a base number. For example, the common-size income statement will report the revenue and expense amounts as percentages of net sales. The common-size balance sheet will report each asset, liability, and owner equity amount as a percentage of total assets.

Common-size financial statements allow you to compare the financial statements of large companies with the financial statements of smaller companies, because you are comparing percentages instead of dollars. For example, a small retailer can compare her cost of goods sold (perhaps 78%) to a much larger retailer’s cost of goods sold (perhaps 80%). Similarly, one company’s inventory might be 33% (of total assets) while a competitor’s might be 28%.

Common-size financial statements are related to a technique known as vertical analysis.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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