Common-size income statement

A income statement that report its items (incomes, expenses) as the percentage of net sales (not reports in dollars). Each item of the income statement is percentage of net sales of a business organization

Applications

Common income statement sheet is used as analytic and comparison tool, companies use these balance sheets and income statement to compare with those of competitors and to analyse their performance in short and long run. Since these income statement s are based on percentage, a company can compare its performance with other large or small companies performance without worrying about actual values of balance sheet items and It is nearly not possible to directly compare the financial statements for two companies because of differences in sizes of these companies, therefore companies try to standardize the financial statements in the form of common size statements.


A common size income statement


Net sales                                                                        100.0 %
Cost of goods sold                                                           29.5%
Depreciation                                                                    10%
Earnings before interest and taxes (EBIT)                           20%
Interest                                                                            5%
Taxable income                                                                5%
Taxes                                                                              8%
Net income                                                                      18 %
Dividends                                                                         4.5%



A common size balance sheet looks like that:

                                                                                                                    
       
ASSETS                                                                   EQUITY AND LIABILITIES

Cast                20%                                                    Capital            40%
Bank               10%                                                    Net Profit        10%
Inventories       10%                                                    Creditor           25%
Building           60%                                                    Note payable   25%
Total assets   100%                                                    Total             100%