Define: Common Size Income Statement

A common size income statement is a financial statement that presents all income and expenses as a percentage of total revenue, allowing for easy comparison of different companies or periods.

A regular income statement presents income and expenses in dollar amounts, while a common size income statement presents them as percentages of total revenue.

A common size income statement is useful for comparing the financial performance of different companies, analyzing trends over time, and identifying areas of strength or weakness in a company’s operations.

To calculate a common size income statement, you divide each line item on the income statement by the total revenue and multiply by 100 to get the percentage.

One limitation of a common size income statement is that it does not provide information on the actual dollar amounts of income and expenses, which may be important for certain types of analysis.

While a common size income statement can provide insights into a company’s historical performance, it may not be as useful for forecasting future performance, as it does not take into account changes in revenue or expenses.

Common size income statements are not typically required by law, but they can be useful for internal and external financial analysis and reporting.

Yes, a common size income statement can be used to compare a company’s financial performance against industry standards, as it allows for easy comparison of income and expenses as a percentage of total revenue.

A common size income statement can help with decision-making by providing insights into a company’s financial performance and identifying areas that may need improvement or further investment.