What is a Common-Size Balance Sheet?
A common-size balance sheet is a balance sheet in which each line item is expressed as a percentage of assets.
How Does a Common-Size Balance Sheet Work?
For example, let's assume that Company XYZ's balance sheet looks like this:
The right-most column on this balance sheet, which shows each line item as a percentage of assets, is a common-size balance sheet.
Why Does a Common-Size Balance Sheet Matter?
Common-size balance sheets facilitate easy comparison. Not only can readers easily see how a company's capital structure is allocated, they can compare those percentages to other companies or other periods in time. This allows analysts to compare companies of different sizes and not be "blinded" by the size differences inherent in the raw data.
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