Common-Size Financial Statement A common-size financial statement converts dollar amounts on standard financial statements into percentages of a single base figure. This standardization makes it easier to compare companies of different sizes, compare performance across time, and identify what drives profitability. How it works
* Choose a base figure:
* Income statement: base = sales (revenue).
* Balance sheet: base = total assets (most common).
* Cash flow statement: base = total cash flow or the subtotal for each section (operating, investing, financing).
* Divide each line item by the base and express the result as a percentage.
* Example: COGS ÷ Sales = COGS as a percentage of sales.
Why use common-size statements
* Enables “apples-to-apples” comparisons across companies and periods.
* Reveals cost structure and margin drivers (e.g., what percent of sales is COGS, SG&A, taxes).
* Highlights trends in asset composition, leverage, and cash-flow sources/uses.
* Useful for benchmarking against peers or industry averages.
Types and conventions
* Income statement: All line items expressed as a percentage of sales (revenue).
* Balance sheet:
* Most common: express all items as a percentage of total assets.
* Alternative: present assets as % of total assets, liabilities as % of total liabilities, and equity as % of total equity (less common).
* Cash flow statement:
* Option 1: express every line as a percentage of total cash flow.
* Option 2 (more common): express items in each section as a percentage of that section’s subtotal (e.g., operating items as % of cash from operations).
Simple example (income statement) Company figures:
- Sales: $100,000
- Cost of goods sold (COGS): $50,000
- Taxes: $1,000
- Net income: $49,000 Explore More Resources
Common-size income statement (each line as % of sales):
- Sales: 100%
- COGS: 50% (50,000 ÷ 100,000)
- Taxes: 1% (1,000 ÷ 100,000)
- Net income: 49% (49,000 ÷ 100,000) How to create a common-size statement (step-by-step)
1. Select the financial statement and appropriate base figure.
2. For each line item, divide the dollar amount by the base.
3. Multiply the result by 100 to express as a percentage.
4. Review for trends and compare to peers or previous periods.
Limitations and cautions
* Results can be affected by different accounting policies (e.g., inventory methods, depreciation, revenue recognition).
* Percentages provide structure but not absolute scale—high margins on small revenue may not indicate strong financial position.
* Use alongside other ratio analyses and absolute-dollar review for a complete picture.
Key takeaways
* Common-size statements standardize financial data as percentages, simplifying comparisons across companies and time.
* They are most commonly applied to the income statement (as % of sales) and the balance sheet (as % of total assets).
* Useful for identifying cost drivers and structural changes, but should be interpreted with awareness of accounting differences and context.