Chapter 17, Problem 6E

To determine

Introduction:

Common Size Comparative Statements

• Common size statements are comparative financial statements that facilitate data analysis and comparison of the financial results with the results of previous time periods.

• While preparing a common size income statement, the elements of the financial statements such as expenses, costs and net results (profit / loss) are expressed as a percentage of a fixed base, usually the sales for the year.

• While preparing a common size balance Sheet, the elements of the financial statements such as current assets, fixed assets and current liabilities etc. are expressed as a percentage of a fixed base, usually the total of assets / liabilities for the year.

• The individual cost elements are then analyzed and year on year analysis is performed in order to check if the growth in revenues and expenses / assets and liabilities correspond to a matching proportionate increase and vice versa.

• The main purpose of common size financial statements is to enable comparison with results of previous financial time periods and also facilitate tracking and review.

To Prepare:

Common Size Balance Sheets and analysis of the results.