Common-Size Financial Statements

An easy way to spot trends in your balance sheet and income statement data from a number of years, or to compare your information with that of another company or industry group, is to use "common size" financial statements.

To create common size statements, you simply take the information from your regular statements, and express it as percentages rather than as absolute dollars. This makes it much easier to pinpoint differences from year to year, and to compare your data with that of one or more companies that may be considerably larger or smaller than yours. Moreover, if you get industry data or financial data on your competitors from a commercial service, the best way to compare the data is to express all financials in the common-size, percentage, format.

Here's an example of an income statement that shows both absolute dollar values for four years, and also common size percentages for the same four years. Note that all items on the common size part of the statement are expressed in terms of a percentage of sales. To arrive at the common size percentage for an item, we simply divided the dollar value of that item by the dollar value of sales for the period.

 
Dollars, in Thousands
Common Size Percentage
1 2 3 4 Years 1 2 3 4
$525 $595 $630 $724 Sales 100 100 100 100
158 190 208 217 Gross Margin 30 32 33 30
79 95 95 101 Selling Exp. 15 16 15 14
31 31 32 32 Gen. & Admin. 6 5 5 4
$ 48 $ 64 $ 81 $ 84 Operating Inc. 9 11 13 12
6 6 6 8 Interest 1 1 1 1
$ 42 $ 58 $ 75 $ 76 Pretax Income 8 10 12 10
14 20 26 26 Fed. Inc. Tax 3 3 4 4
$ 28 $ 38 $ 49 $ 50 Net Income 5 6 8 7

Here's an example of a balance sheet that shows both absolute dollar values for four years, and common-size percentages for the same four years. Notice that items normally appearing on the asset side of the balance sheet are presented as a percentage of total assets. Items normally on the liabilities and equity side of the sheet are presented as a percentage of total liabilities and equity.

 
Dollars, in Thousands
Common Size Percentage
1 2 3 4 Years 1 2 3 4
$ 50 $ 40 $ 45 $ 70 Cash 6 4 5 7
230 250 175 225 Accts. Rec. 26 27 19 22
175 180 195 185 Inventory 20 19 21 18
10 15 10 310 Other Current Assets 1 2 1 1
$465 $485 $425 $490 Total Current Assets 53 52 46 48
400 425 500 515 Plant & Equip. 45 46 54 51
15 20 5 10 Other Non-Current Assets 2 2 1 1
$880 $930 $930 $1015 Total Assets 100 100 100 100

200 225 220 210 Accts. Pay. 23 24 24 21
50 45 20 80 Bank Debt 6 5 2 8
$250 $270 $240 $290 Total Current Liabs. 28 29 26 29
150 100 60 250 Long-Term Debt 17 11 6 25
$400 $370 $300 $540 Total Liabs. 45 43 32 53
480 560 630 475 Owner's Equity 54 52 68 47
$880 $930 $930 $1015 Total Liabs. & Equity 100 100 100 100