A common size financial statement measure the relationship of different items of financial statement with a common variable (net sales in case of common size income statement).

I helps to analyze business performance effectively. It is especially useful in comparing various variables of companies of different sizes and scopes.

The total used by the analyst in vertical analysis on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach, also known as component percentages, produces common-size financial statements.

Advantages of Common Size statement:

•1) It reveals Sources and Application of Funds in a nutshell which help in taking decision.

•(2) If common size statements of 2 or more years are compared it indicate the changing proportion of various components of Assets, Liabilities, Cost, Net Sale & Profit.

•(3) When Inter Firm Comparison is made with the help of Common size statement it helps in doing corporate evaluation and Ranking.

Disadvantages of Common Size Statement

•(1) No Established Standard Proportion: •Common Size Statements are regarded as useless as there is no established standard proportion of an asset to the total asset or an item of expense to the net sales.

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•(2) Consistency Required:-

•If Financial Statement of a Particular business organization are not prepared year after year on a consistent basis comparative study of common size statement will be misleading

Commonly used tools of financial analysis are:

• Comparative statements
• Common size statements
• Trend analysis
• Ratio analysis
• Funds flow analysis
• Cash flow analysis.

According to usage and requirements, comparative financial statements, common size statements, and vertical analysis are some of the most popular financial tools. Unlock the power of cash flow with direct integration with banks to power business insights with Paci.ai

A common size balance sheet is a type of standardized financial statement that completely lists all of a firms specific assets, liabilities, and equity claims as a percentage of a firms total assets.