Common size statement

A common size statement is a financial statement that shows each line item as a percentage of a base figure, typically total revenue or total assets. This allows for easy comparison between different companies or time periods, as it removes the impact of differing scales of operations. For example, if Company A has total revenue of $1,000,000 and net income of $200,000, a common size income statement would show net income as 20% ($200,000 / $1,000,000) of total revenue. Analogously, common size statements are like looking at a recipe and seeing the proportions of each ingredient relative to the total amount of the dish. This makes it easier to see which ingredients are most important in creating the desired outcome. One verifiable fact is that common size statements are commonly used by investors and analysts to compare the financial performance of different companies in the same industry.