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.
|For Cory's Tequila Co.||1999||1998|
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.