Accounting Question
Common-size analysis shows the proportion of a total group or sub-group. An item of a particular financial statement represented by standardizing firm’s financial statement for a particular period by way of expressing each component as a percentage of a relevant base.
Common-size analysis is also used for temporal or time series comparisons. Common-size analysis has a limitation that it fails to reflect the relative sizes of companies when used for inter-company comparisons.
In case of balance sheet, total asset or total equity & liabilities is taken as base. And each item of asset is expressed as a percentage of total asset while each item of equity & liability is expressed as a percentage of total equity &liabilities.
In case of income statement, net sales (for multi-step income statement) total revenue (for single step income statement) is taken as base and each and every item of income statement is expressed as a percentage of net sale or total revenue
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