Common-size

Every line restated as a percentage — of revenue on an income statement, of total assets on a balance sheet — so firms of different size can be compared.

Where you will meet it

Common-size appears in 4 learning outcomes on the CFA syllabus. A few of them:

• Use the framework for analysing financial statements
  CFA Level I · Financial Statement Analysis

  “The framework runs in six steps: state the purpose and context of the analysis, collect the data, process it into ratios and common-size statements, analyse and interpret the processed data, develop and communicate conclusions, and follow up.”

• Show how a financial statement analysis framework is applied to a specific problem, question or purpose (for example, valuing equity against comparables, critiquing a credit rating, getting a full view of financial leverage, or assessing the views in management's discussion of results)
  CFA Level II · Financial Statement Analysis

  “Process it: adjust statements, build common-size figures and ratios.”

• Build a common-size income statement and explain what it shows
  CFA Level I · Financial Statement Analysis

  “A common-size income statement expresses every line as a percentage of revenue, which removes the effect of size and makes companies of very different scale directly comparable.”

• Build a common-size balance sheet and explain what it shows
  CFA Level I · Financial Statement Analysis

  “A common-size balance sheet expresses each item as a percentage of total assets, exposing the structure of what a company owns and how it is financed.”

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with C · Glossary