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.

AccountingCoach.com illustrates common-size financial statements as part of its explanation of Financial Ratios.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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