Common Size Analysis

Suppose someone told you that a particular company had $1 billion in earnings one year. Is that good or bad? The answer depends on many factors, including:

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

How can an investor fairly compare one company’s earnings to another, given that they cannot be exactly alike in all other respects? How can the firm’s performance be compared to its past performance to determine whether it is improving? Common size analysis is one tool that allows investors to compare companies across time and with other companies.

The following articles explain how to use common size analysis in practice:

  1. Vertical Common Size Income Statements shows how to express the income statement as a percentage of sales and use this data to analyze a company’s performance over time.
  2. Horizontal Common Size Income Statements demonstrates how to express the financial statements in each year as a percentage of a given base year. This permits an investor to see if certain expenses, assets or liabilities are growing faster than others.
  3. Common Size Balance Sheets can be used to compare companies even when they use different currencies.
  4. Using Common Size Statements to Forecast Earnings shows how to do just that.
For more information, see all articles on: Common Size Analysis, Financial Statement Analysis, Fundamental Analysis, Investing in Stocks, Ratio Analysis, Security Selection

See also:
  • Horizontal Common Size Income Statements
  • Vertical Common Size Income Statements
  • Common Size Balance Sheets
  • Ratio Analysis
  • Using Common Size Financial Statements to Forecast Earnings
  • Technical Analysis Explained : The Successful Investor's Guide to Spotting Investment Trends and Turning Points

    The Intelligent Investor: The Classic Text on Value Investing

    Financial Statement Analysis: A Practitioner's Guide, 3rd Edition

    Managing Investment Portfolios: A Dynamic Process (CFA Institute Investment Series)

    3 Responses to “Common Size Analysis”

    1. Vertical Common Size Income Statements - Financial Education - Everything You Need To Know About Finance Says:

      [...]     « Horizontal Common Size Income Statements Common Size Analysis [...]

    2. Ratio Analysis - Financial Education - Everything You Need To Know About Finance Says:

      [...] as common size financial statements improve comparability of performance over time and across companies, ratio analysis is another [...]

    3. XOM and TOT: Cross Sectional Comparison of Exxon Mobil and Total SA | Stock Market Beat Says:

      [...] a book project we are working on we conducted a common size analysis of Exxon Mobil’s (XOM) and Total SA’s (TOT) financial statements. We figured it [...]

    Leave a Reply

    You must be logged in to post a comment.