The common size statements make it easy to see that Company B is proportionally more profitable and better at controlling expenses. By analyzing how a company’s how to calculate common size income statement financial results have changed over time, common size financial statements help investors spot trends that a standard financial statement may not uncover.

The common size percentages help to highlight any consistency in the numbers over time–whether those trends are positive or negative. Large changes in the percentage of revenue as compared to the various expense categories over a given period could be a sign that the business model, sales performance, or manufacturing how to calculate common size income statement costs are changing. Common-size analysis converts each line of financial statement data to an easily comparable amount measured as a percent. Income statement items are stated as a percent of net sales and balance sheet items are stated as a percent of total assets (or total liabilities and shareholders’ equity).

Common Size Balance Sheet Calculator

As a result, the financial statement user can more easily compare the financial performance to the company’s peers. An income statement is one of the big three financial statements a company prepares. This statement lists the sales revenue, cost of goods sold and operational prepaid expenses expenses for the business. Traditionally, the information reported consists of the dollar amount for each line item as it appears in the general ledger. This presentation allows stakeholders to determine how well the company did using the capital from its cash account.

  • The use of common-size statements facilitates vertical analysis of a company’s financial statements.
  • All percentage figures in a common-size balance sheet are percentages of total assets while all the items in a common-size income statement are percentages of net sales.
  • As a result, the financial statement user can more easily compare the financial performance to the company’s peers.
  • Generally accepted accounting principles are based on consistency and comparability of financial statements.
  • The common size percentages also help to show how each line item or component affects the financial position of the company.

Common-size analysis allows for the evaluation of information from one period to the next within a company and between competing companies. When you show the items of the income statement as a percentage of the sales figure, it is easy to compare the income and expenses and understand the financial position of the company. Common size analysis is an excellent https://simple-accounting.org/ tool to compare companies of different sizes or to compare different years of data for the same company, as in the following example. The standard figure used in the analysis of a common size income statement is total sales revenue. The common size percentages are calculated to show each line item as a percentage of the standard figure or revenue.

Income Statement Example

All percentage figures in a common-size balance sheet are percentages of total assets while all the items in a common-size income statement are percentages of net sales. The use of common-size statements facilitates vertical analysis of a company’s financial statements. Generally accepted accounting retained earnings balance sheet principles are based on consistency and comparability of financial statements. A common size income statement makes it easier to see what’s driving a company’s profits. The common size percentages also help to show how each line item or component affects the financial position of the company.

how to calculate common size income statement

A common-size income statement transforms these dollar amounts into percentages, with sales revenue being the divisor for all calculations. However, a look at the common size financial statement of the two businesses, which restates each company’s figures normal balance as a percent of sales, reveals Company B is actually more profitable. The common size income statement for Company A shows operating profits are 25% of sales (25/100). The same calculation for Company B shows operating profits at 75% of sales (15/20).