Common Size Balance Sheet

What is common size balance sheet?

Common size balance sheet is an expanded balance sheet,
which includes all data usually presented on the balance sheet. It also
includes percentage of each caption from the total category of the balance sheet items.

The categories are:

Total Assets

Total Liabilities

Total Equity

For example, common size balance sheet will include value of cash and its percentage of total assets’ value.

Such format of balance sheet is used to analyze:

structure of balance sheet
compare company’s financial data with other companies in the same industry or with the industry average

Also comparison is done between different periods of the same company, which allows to see the trend of financial performance and balance sheet structure changes.

Generally accepted financial accounting standards do not required preparation of common size balance sheet. This report is more a part of management reporting and used in financial analysis of the business.

Common size financial statements are used by the auditors during the audit of the business, as they provide valuable insights in financial data and also help in the audit procedures.

Common size balance sheet example

Common size balance sheet example would include:

10,000 USD cash equivalents, 50,000 USD total assetsOn the common-size balance sheet all accounts for the current year are expressed as a percentage of a particular category.

In this case cash of total asset will be 20%.

In addition to this type of the balance sheet, common size income statement is also prepared and serves the same aim, as the expanded balance sheet. On the income statement each caption will be shown as a percentage of total income statement category

Summary points

Summary point: Common size financial statements present all balance sheet account values as a percentage of total balance sheet category value (Assets, Liabilities, Equity)

It is essential to remember that data between different businesses even operating in the industry cannot be fully comparable due to variety of accounting principles and policies applied. So users should take this limitation of the common size balance sheet into account.

All Balance Sheet Related Topics to Explore: