Common-size statements restate financial statements in percentage terms so companies can be compared more easily.
Common forms:
- Common-size income statement: each line shown as a percentage of revenue
- Common-size balance sheet: each line shown as a percentage of total assets
Why useful:
- makes firms of different sizes easier to compare
- highlights margin structure and asset mix
- helps spot trend changes over time
This is one of the simplest tools for comparing firms after understanding the basic Types of Financial Statements.