The common size statement is a financial document that uses a common base figure and assigns a percentage to each line item or category, allowing for quick identification of areas using more operating capital than practical. It can also be used to compare financial structures and operating strategies of different companies and can be prepared for any review period.
The common size statement is a financial document that is often used as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and other financial statements, the common size statement does not reflect exact figures for each individual item. In contrast, the common size statement structure uses a common base figure and assigns a percentage of that figure to each line item or category reflected in the document.
A business may choose to use financial statements of this type to present a quick snapshot of how much of the revenue collected or generated from the business goes to each operating function within the organization. Using a common size statement can allow you to quickly identify areas that may be using more operating capital than is practical at the time, and allow budget changes to be implemented to correct the situation.
The common size statement can also be a useful tool for comparing the financial structures and operating strategies of two different companies. Using percentages in common size statements removes the question of which company generates more revenue and focuses on how revenue is used within each of the two companies. Often using a common sizing statement in this way can help identify areas where each company is using resources efficiently, as well as areas where there is room for improvement.
Common size statements can be prepared for any desired review period. Companies that choose to make use of financial statements of this type may choose to use this format for quarterly, semi-annual, or annual reviews. When there is concern about operating costs, the common size statement may be prepared more frequently, such as monthly. Because the common size statement is very easy to read and does not necessarily contain information that would be considered proprietary, the format can often be used as part of general information that is disclosed to the public.
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