What is Common-size financial statements?
In short
Common-size financial statements show each line as a percentage of a base: total assets on the balance sheet and net sales on the income statement. This is also called vertical analysis.
Key takeaways
- They make companies of different sizes easier to compare.
- Horizontal analysis instead compares the same line across periods, in amounts or percentage changes.
- A rising cost-of-sales percentage, for example, points to falling gross margins.
Where it's tested
BAR: Financial Statement Analysis — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
In vertical (common-size) analysis of an income statement, each line item is expressed as a percentage of: