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Common-size financial statements usually involve the balance sheet and the income statement. These two financial statements become "common-size" when their dollar amounts are expressed in percentages.For example, a common-size balance sheet will report all of the balance sheet amounts as a percentage of the "Total Assets" amount. If Cash was $80,000 and Total Assets were $1,000,000 then Cash will appear as8% and Total Assets will appear as100%. If the Current Assets were $350,000 they will appear as35%. If Current Liabilities were $180,000 then on the common-size statement they will appear as18%. By having all of the balance sheet amounts as a percentage of Total Assets, you can compare your company's current asset percentage (and all other line items) to your industry's percentage or to any other company's percentages. It doesn't matter if the other company is larger or smaller than your company, because all amounts are in percentages of Total Assets. Hence, the name "common-size."A common-size income statement will show all of the income statement amounts as a percentage of net sales. If net sales are $10,000,000 and the cost of goods sold is $7,800,000, the common-size income statement will report net sales as100% and the cost of goods sold as78%. If SG&A expenses are $1,300,000 they will appear as13%. Having the income statement in percentages of net sales allows you to compare your company's SG&A expenses and its gross profit to your industry percentages and to other companies regardless of size
Common-size financial statements usually involve the balance sheet and the income statement. These two financial statements become "common-size" when their dollar amounts are expressed in percentages.
