Common size statement is one in which all the items are expressed as a percentage of a base item. Common size statements are helpful in discovering efficiencies and inefficiencies of the management by comparing:
- the statements of an individual business for two or more different periods,
- the statements of two or more different companies in an industry,
- the statements of an individual business with the industry’s average.
Example:
An example of comparative common size income statement of two companies is given below:
An example of comparative common size balance sheet of two companies is given below:
