Common Size Financial Statement Analysis (Vertical Analysis) Homework Help, Tutoring
Common Size Financial Statement Analysis (Vertical Analysis) Assignment Help, Tutor
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Common Size Financial Statement Analysis
Common Size Statement involves representing the income statement figures as a percentage
of sales and representing the balance sheet figures as a percentage of total assets.
Financial statements represent absolute figures and a comparison of absolute figures
can be misleading. For example, the cost of goods sold might have increased but
as a percentage of sales it might have decreased. So, to have a perfect understanding
about these increases and decreases, the figures reported are converted into percentages
to some common base. In Income Statement, Sales figure is assumed to be 100% and
all other figures are expressed as a percentage of sales. In Balance Sheet, the
total of assets is taken as 100% and all other figures are expressed as a percentage
of total assets. This type of Statement so prepared is called as the Common Size
Statement and the analysis performed on the Common Size Statement is called as the
Common Size Financial Statement Analysis or otherwise called as Vertical Analysis.
Example:
Common Size Income Statements for the years ended 31st Dec 2008 & 31st Dec 2009
Common Size Balance Sheets as on 31st Dec 2008 & 31st Dec 2009
| 2008 | 2009 | |
| Sales | 100.00% | 100.00% |
| Less: Cost of goods sold | 71.43% | 71.11% |
| Gross profit | 28.57% | 28.89% |
| Less: Operating expenses | ||
| General & administrative expenses | 2.86% | 3.33% |
| Selling & distribution expenses | 5.71% | 5.56% |
| Other operating expenses | 1.43% | 1.67% |
| Operating profit | 18.57% | 18.33% |
| Less: Interest expenses | 4.29% | 4.44% |
| Net income before taxes | 14.29% | 13.89% |
| Less: Taxes at 30% | 4.29% | 4.17% |
| Net Income after taxes | 10.00% | 9.72% |
Common Size Balance Sheets as on 31st Dec 2008 & 31st Dec 2009
| 2008 | 2009 | |
| Current Assets: | ||
| Cash | 6.25% | 5.17% |
| Accounts Receivables | 25.00% | 25.86% |
| Inventory | 18.75% | 21.55% |
| Total Current Assets | 50.00% | 52.59% |
| Fixed Assets: | ||
| Buildings | 37.50% | 34.48% |
| Furnitures & office equipments | 12.50% | 12.93% |
| Total Fixed Assets | 50.00% | 47.41% |
| Total Assets | 100.00% | 100.00% |
| Liabilities: | ||
| Current Liabilities: | ||
| Accounts Payable | 12.50% | 10.34% |
| Notes Payable | 6.25% | 4.31% |
| Interest Payable | 1.25% | 1.03% |
| Total Current Liabilities | 20.00% | 15.69% |
| Shareholder's Equity: | ||
| Common Stock | 62.50% | 64.66% |
| Retained earnings | 17.50% | 19.66% |
| Total Stockholder's equity | 80.00% | 84.31% |
| Total Liabilities & Stockholder's equity | 100.00% | 100.00% |
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