What is a Common-Size Financial Statement?
A common-size financial statement is an income statement or balance sheet in which each line items are expressed as a percentage of sales or assets, respectively.
How Does a Common-Size Financial Statement Work?
For example, let's assume that Company XYZ's income statement looks like this:
The right side of the income statement, which shows each expense as a percentage of sales, is a common-size income statement.
Why Does a Common-Size Financial Statement Matter?
Common-size financial statements facilitate easy comparison. Not only can readers easily see how much of every dollar goes to rent, for example, they can compare that percentage 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.