What is a common-size statement?

A common-size statement is a financial statement format where each line item is expressed as a percentage of a base figure, which is typically total revenue for the income statement or total assets for the balance sheet. This format allows for easier comparison across different periods or among different companies by standardizing the values, eliminating the effects of size differences. For example, in a common-size income statement, each expense line is presented as a percentage of total revenue, which helps analysts and stakeholders evaluate the efficiency and profitability relative to sales. Similarly, on a common-size balance sheet, each asset, liability, and equity component is represented as a percentage of total assets, facilitating comparisons of financial structure and leverage between companies of different sizes or at different times. This approach enhances the readability and analytical utility of financial statements, making it a valuable tool for financial analysis.