COMMON-SIZE FINANCIAL STATEMENT

Ghina Rizqy
C1L014020

Analytical procedure is an analysis over transactions as comparisons, and tendency to use statistical approaches. One example of analytical procedure is common-size financial statement.

Common-Size Financial Statement

It is a company financial statement that displays all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company.

There are types of common-size financial statement:

• common-size balance sheet
• common-size income statement

Common-Size Analysis

We need common-size financial statement to help us answer several questions such as:

• how much revenue did the company book in order to achieve those earnings?
• how much did the company earn last year?
• how much did competitors of a similar size earn?

For better comparison, the net income figures can be expressed as a percentage of the sales revenues of each company (comparison between 2 companies). This can prevent the misleading because each company has different size. Common-size analysis also helps us to calculate the expenses as a percentage of revenue.

Example

Analysis:

• Material cost has increased by 6%.
• Income from others has initiated this year.
• PBDIT has decreased by 3% because of increases in material cost.

Analysis:

• Proportion of share capital has reduced.
• Investments has increased drastically.
• Unsecured loans has a significant change of 9%.
• Cash and bank balance has increased.
• Total asset have increased because of the increase in investments.