A common-size balance sheet expresses each line item on the balance sheet as a percentage of total assets.
Thus, to create a common-size balance sheet, you go line-by-line through the balance sheet and divide each item by total assets.
These percentages then form the common-size balance sheet, which is helpful because it lets us compare balance sheets across companies.
We can compare (a) companies that report their financial statements in different currencies or (b) companies that are of different sizes.
But a common-size balance sheet isn’t just helpful for comparing companies.
You can also use it to learn about a company’s capital structure and its mix of assets.
But there’s even more we can do with common-size balance sheets.
If we look at a series of them over time, we can identify trends and spot unusual fluctuations.
But you need to be careful when performing common-size analysis.
That’s because the various line items aren’t independent from one another.
Download example of common-size balance sheet: https://docs.google.com/spreadsheets/d/1Xrg1IbxjTvZuETeMYfB2E9Z4E9hFWgKuFEexBtoGsCA/edit?usp=sharing
0:00 Introduction
0:16 Compare balance sheets across companies
1:20 Learn about a company’s capital structure and mix of assets
2:01 Identify trends and spot unusual fluctuations
3:04 Things to watch out for when performing common-size analysis
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