Accounting & auditingLesson 3 of 3 in the course Financial Statements

Common-Size Financial Statements: Calculation and Interpretation

5 flashcards · 5 quiz questions · 5 match pairs · 5 fill-in sentences · English

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Summary

A common-size income statement expresses each income statement line item as a percentage of net sales. Net sales is the base because income statement items such as expenses and profit are related to the revenue earned during the period.

Common-size income statement percentage=Income statement line itemNet sales×100\text{Common-size income statement percentage} = \frac{\text{Income statement line item}}{\text{Net sales}} \times 100

All flashcards

Common-size income statement
An income statement expressing each line item as a percentage of net sales.
Common-size balance sheet
A balance sheet expressing each line item as a percentage of total assets.
Common-size income statement calculation
Divide an income statement line item by net sales, then multiply by 100.
Common-size balance sheet calculation
Divide a balance sheet line item by total assets, then multiply by 100.
Common-size analysis limitation
Percentages show relative size, but do not establish why a change occurred.

Quiz questions

  1. Which base is used to calculate common-size income statement percentages?Answer: Net sales.
  2. A company has net sales of $200,000 and salaries expense of $10,000. What percentage of net sales is salaries expense?Answer: 5%.
  3. A company has total assets of $500,000 and inventory of $75,000. What percentage of total assets is inventory?Answer: 15%.
  4. Why can an anchored cell reference help when copying a spreadsheet formula?Answer: It keeps the base-cell reference fixed as the formula is copied.
  5. Why can common-size percentages help compare organizations of different sizes?Answer: They compare relative financial statement amounts rather than dollar totals.

Based on Principles of Finance by Julie Dahlquist, Rainford Knight (OpenStax), licensed CC BY 4.0. Adapted into a summary, flashcards and quizzes.

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