Common Size Balance Sheet

Loading the player...

What is a 'Common Size Balance Sheet'

A common size balance sheet is a balance sheet that displays both the numeric value of all entries and the percentage each entry is relative to the total value of related entries. On a common size balance sheet, an asset is compared to total assets, a liability to total liabilities and stockholder equity to total stockholder equity.

BREAKING DOWN 'Common Size Balance Sheet'

Common size balance sheets make it easier to analyze changes to a company’s balance sheet over multiple time periods. By indicating a percentage in addition to the actual entry value, analysts can tell not only if the total value of a company’s inventory increased in real terms compared to the previous year, but whether the inventory represents the same percentage of total assets.

Common size balance sheets are not a type of financial reporting required in GAAP, but are useful for business owners. In order to create the sheet, the business must first determine its total assets, total liabilities and total stockholder equity. The business then adds a column to its standard balance sheet that will contain the percentage of each item compared to the total. Each major entry type on the sheet is then divided by the total value of its category.

For example, if a company’s total assets is $6.8 million (the numbers in the chart are quoted in thousands) and the amount of cash it has on hand is $1 million, then cash represents approximately 15% of total assets ($1 million / $6.8 million x 100). This figure can then be compared to the previous year. In the above case, cash has decreased relative to total assets compared to the previous year.

RELATED TERMS
  1. Off Balance Sheet - OBS

    An asset or debt that does not appear on a company's balance ...
  2. Common Size Financial Statement

    A company financial statement that displays all items as percentages ...
  3. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
  4. Balance Sheet Reserves

    An amount expressed as a liability on the insurance company's ...
  5. Shareholders' Equity

    A firm's total assets minus its total liabilities. Equivalently, ...
  6. Clean Balance Sheet

    A company's financial statement that summarizes its assets, liabilities ...
Related Articles
  1. Investing

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  2. Managing Wealth

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  3. Insights

    Explaining the Common-Size Balance Sheet

    A common-size balance sheet shows the percentage of each listed item as compared to the total value of related entries, as well as their numerical values.
  4. Investing

    Common Size Balance Sheet

    Investopedia explains: A common size balance sheet is a valuable tool for tracking and analyzing the changes and performance of a business over multiple time periods.
  5. Investing

    Understanding Common Size Financial Statements

    A common size financial statement displays all items on a balance sheet as a percentage of a common base figure.
  6. Investing

    5 Tips For Reading A Balance Sheet

    If you know how to read it, the balance sheet provides valuable information on a potential investment.
  7. Entrepreneurship & Small Business

    Understanding Total Liabilities

    Total liabilities are the combined debts an individual or company owes.
  8. Markets

    How To Evaluate A Company's Balance Sheet

    Asset performance shows how what a company owes and owns affects its investment quality.
  9. Investing

    Comparing the P&L Statement and the Balance Sheet

    Basically, the balance sheet shows how much a company is worth, while the P&L statement reveals if a company is profitable or not.
  10. Investing

    Value Investing: Finding Value In Financial Reports And Balance Sheets

    There is plenty of information about a company that you'll want to know as a value investor, but that you can't get from a casual glance at a stock quote or from reading most stock market commentary. ...
RELATED FAQS
  1. Does the balance sheet always balance?

    Yes, a balance sheet should always balance. The name "balance sheet" is based on the fact that assets will equal liabilities ... Read Answer >>
  2. How should debt services be listed on a balance sheet for a startup business plan?

    Should it be a part of fixed costs? Or can debt service be shown after calculating profits from revenue minus fixed and variable ... Read Answer >>
  3. What's the difference between a trial balance and a balance sheet?

    Discover what is included in a trial balance and a balance sheet, and learn about what sets these two accounting reports ... Read Answer >>
  4. What is the difference between a balance sheet and a cash flow statement?

    Understand the difference between a balance sheet and an income statement. Learn the three components of each of the financial ... Read Answer >>
  5. What items on the balance sheet are most important in fundamental analysis?

    Read about which balance sheet items are considered most important for fundamental analysis, including cash, current liabilities ... Read Answer >>
  6. What is the difference between a fixed asset and a current asset?

    Discover the difference between fixed assets and current assets and the value of each to a company. Learn the category and ... Read Answer >>
Hot Definitions
  1. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  2. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  3. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  4. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  5. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  6. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
Trading Center