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All trading basics

Common Size Analysis

Common Size Analysis = Entity ÷ Total Entity

Indicates the proportion of an asset/liability/expense as a function of total assets/liabilities/revenue.

Things to remember

  • Compares what proportion that an expense reduces sales, especially useful when comparing previous years.
  • It is also useful when comparing similar companies of different sizes to see if they have the same financial structure.
Balance Sheet
Consolidated financial statements, including balance sheet, statement of changes in financial position and income statement for Cory’s Tequila Co. for 1998 and 1999.
Statement of cash flow
Statement of changes in financial position
Income statement
Consolidated income statement for Cory’s Tequila Co. for 1998 and 1999
For Cory's Tequila Co. 1999 1998
Sales 100% 100%
COGS 35% 34%
Other Expenses 40% 41%
Net Income 17% 16%

Common Size Analysis:

Looking at the chart above you wouldn't really think that there is anything that useful to compare. That is because Cory's Tequila Co. has done an excellent job maintaining its pricing and expenditure strategy. Ideally you would like to see Cost of Goods Sold (COGS) go down each year because of increased efficiencies. It also tells us that every $1 of sales contributes 17 cents to the bottom line of Cory's Tequila Co. - a healthy profit margin.