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 and relative percentage for total assets, total liabilities and equity accounts. Common size balance sheets are used by internal and external analysts and are not a reporting requirement of GAAP. A common size balance sheet allows for the relative level of each [asset, liability and equity account to be quickly analyzed.

BREAKING DOWN 'Common Size Balance Sheet'

Any single asset line item is compared to the value of total assets. Likewise, any single liability is compared the value of total liabilities and any equity account is compared to the value of total equity. For this reason, each major classification of account will equal 100% as all smaller components will add up to the major account classification.

Example of Common Size Balance Sheet

A company has $8 million in total assets, $5 million in total liabilities and $3 million in total equity. The company also has $1 million in cash. The common size balance sheet reports the total assets first in order of liquidity. For this reason, the top line of the financial statement would list the cash account and financial value of $1 million. In addition, the cash represents $1 million of the total $8 million in total assets. Therefore, along with reporting the dollar amount of cash, the common size financial statement reports that cash represents 12.5% ($1 million divided by $8 million) of total assets.

Reporting Requirements

Common size balance sheets are not required under generally accepted accounting principles. The percentage information presented in these financial statements are not required by any regulatory agency. Although the information presented is useful to financial institutions and other lenders, a common size balance sheet is typically not required during the application of a loan. Although common size balance sheets are typically utilized by internal management, they provide useful information to external parties including independent auditors.

Usefulness of Common Size Balance Sheet

The value of a common size balance sheet resides in the ease of comparability. The purpose of a common size balance sheet is to allow quick comparisons for different applications. First, a common size balance sheet permits the ability to quickly compare the historical trend of a specific chart of accounts. Second, the percentages may be applied across companies and across industries. Although companies may vary in size, common size balance sheets eliminate any issues when comparing businesses of varying sizes as the use of percentages establishes a comparable baseline. Finally, the percentages – similar to the dollar amounts – may be analyzed over time. Common size balance sheets offer simplicity in comparing relative financial data over specific periods.

RELATED TERMS
  1. Balance Sheet

    A balance sheet reports a company's assets, liabilities and shareholders' ...
  2. Financial Statements

    Records that outline the financial activities of a business, ...
  3. Fed Balance Sheet

    A breakdown of the assets and liabilities held by the Federal ...
  4. Common Size Income Statement

    An income statement in which each account is expressed as a percentage ...
  5. Capital Stock

    The common and preferred stock a company is authorized to issue, ...
  6. Vertical Analysis

    A method of financial statement analysis in which each entry ...
Related Articles
  1. Insights

    How Will the Fed Reduce its Balance Sheet?

    A decade removed from the financial crisis the Federal Reserve has begun the task of unwinding its $4.5 trillion balance sheet.
  2. Investing

    Reviewing Liabilities On The Balance Sheet

    As an experienced or new analyst, liabilities tell a deep story of how a company finances, plans and accounts for money it will need to pay at a future date.
  3. Investing

    How Yellen's Fed Could Jolt the Markets

    The Fed's plan to slash its $4.45 trillion portfolio risks jolting the bond and mortgage markets
  4. Investing

    Useful Balance Sheet Metrics

    These metrics can help you better understand the information found on balance sheets.
  5. Investing

    Hedge Fund Balance Sheet Example

    Once a niche investment, hedge funds have grown to more than $3.2 trillion in assets under management.
  6. Investing

    Evaluating a Company's Capital Structure

    Learn to use the composition of debt and equity to evaluate balance sheet strength.
  7. Insights

    Companies With Big Hidden Debts

    Companies with off-balance sheet debt will be brought to light when new rules come into effect in 2019.
  8. Investing

    Evaluating Your Personal Financial Statement

    Determine your net worth by making your own cash flow statement and balance sheet.
  9. Investing

    Making Sense of Netflix's Balance Sheet

    Understand how to assess Netflix's performance based on the major components of its balance sheet.
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 are the three major financial statements related to each other?

    Learn why investors analyze a company's financial statements, and how the income statement, balance sheet and cash flow statement ... Read Answer >>
  3. How do dividends affect the balance sheet?

    Learn how different types of dividends, such as cash dividends and stock dividends, affect a company's balance sheet, based ... Read Answer >>
  4. How A P&L Statement Differs From A Balance Sheet?

    There are stark differences between the profit and loss statement and the balance sheet. And investors must know how to interpret ... Read Answer >>
Hot Definitions
  1. Treasury Yield

    Treasury yield is the return on investment, expressed as a percentage, on the U.S. government's debt obligations.
  2. Return on Assets - ROA

    Return on assets (ROA) is an indicator of how profitable a company is relative to its total assets.
  3. Fibonacci Retracement

    A term used in technical analysis that refers to areas of support (price stops going lower) or resistance (price stops going ...
  4. Ethereum

    Ethereum is a decentralized software platform that enables SmartContracts and Distributed Applications (ĐApps) to be built ...
  5. Cryptocurrency

    A digital or virtual currency that uses cryptography for security. A cryptocurrency is difficult to counterfeit because of ...
  6. Financial Industry Regulatory Authority - FINRA

    A regulatory body created after the merger of the National Association of Securities Dealers and the New York Stock Exchange's ...
Trading Center