COMMAN SIZE STATEMENTS
For this statement, B/S & P& L A/c are to be prepared in the vertical form and then % is to be calculated for each every amount.
In case of B/S Total sources or Application of funds would be taken as base i.e. 100% and then each figure would be expressed in % of total.
% = Asset/Liability X 100
Total sources/Application
In case of P & L A/c net sales would be taken as base i.e. 100% and then each amount would be expressed in % of Net Sales
% = Expenses/Income X 100
Net Sales
Such statement would help to study and analyze the performance of the company.
The common statement is often called as ‘Common measurement’ or ‘Common Percentage’ or ‘100 Percent’ statement, since each statement is reduced to the total of
100 and each individual component of the statement is represented as percentage of the total, which invariable serves as the base.
This facilitates comparisons of two or more business entities with a common base. In the case of balance sheet, total assets or liabilities or capital can be taken as the common base and in the case of income statement, net sales can be taken as the base.
Thus, the statement prepared to bring out the ratio of each assets or liability to the tool of the balance sheet and the ratio of each item of expense or revenue to net sales is known as common size statement.
For this statement, B/S & P& L A/c are to be prepared in the vertical form and then % is to be calculated for each every amount.
In case of B/S Total sources or Application of funds would be taken as base i.e. 100% and then each figure would be expressed in % of total.
% = Asset/Liability X 100
Total sources/Application
In case of P & L A/c net sales would be taken as base i.e. 100% and then each amount would be expressed in % of Net Sales
% = Expenses/Income X 100
Net Sales
Such statement would help to study and analyze the performance of the company.
ADVANTAGES
The following are the advantages of Common-Size statements:
a) Common size analysis reveals the source of capital and all other sources of funds and the distribution or use of application of the total funds in the assets of a business enterprise.
b) Comparison of common-size statements over a number years will clearly indicate the changing proportions of the various components of assets, liabilities, costs, net sales and profits.
c) Comparison of common-size statements of two or more enterprise in the same industry or that of an enterprise with the industry as whole, will assist corporate evaluation and ranking.
DISADVANTAGE
a) Comparative common-size statements do not show variation in various account items from period to period.
b) If financial statements of a particular business organization are not prepare year after year on a consistent basis, comparative study of common –size statements will be misleading
c) Common-size statements are regarded by many as useless as there are no established standard proportions of an asset to the total assets or of an item of expense to the net sales.
d) Similarly, in the absence of third-dimensional consistency, comparative study of common-size statements of two or more business entities will be meaningless.
For this statement, B/S & P& L A/c are to be prepared in the vertical form and then % is to be calculated for each every amount.
In case of B/S Total sources or Application of funds would be taken as base i.e. 100% and then each figure would be expressed in % of total.
% = Asset/Liability X 100
Total sources/Application
In case of P & L A/c net sales would be taken as base i.e. 100% and then each amount would be expressed in % of Net Sales
% = Expenses/Income X 100
Net Sales
Such statement would help to study and analyze the performance of the company.
The common statement is often called as ‘Common measurement’ or ‘Common Percentage’ or ‘100 Percent’ statement, since each statement is reduced to the total of
100 and each individual component of the statement is represented as percentage of the total, which invariable serves as the base.
This facilitates comparisons of two or more business entities with a common base. In the case of balance sheet, total assets or liabilities or capital can be taken as the common base and in the case of income statement, net sales can be taken as the base.
Thus, the statement prepared to bring out the ratio of each assets or liability to the tool of the balance sheet and the ratio of each item of expense or revenue to net sales is known as common size statement.
For this statement, B/S & P& L A/c are to be prepared in the vertical form and then % is to be calculated for each every amount.
In case of B/S Total sources or Application of funds would be taken as base i.e. 100% and then each figure would be expressed in % of total.
% = Asset/Liability X 100
Total sources/Application
In case of P & L A/c net sales would be taken as base i.e. 100% and then each amount would be expressed in % of Net Sales
% = Expenses/Income X 100
Net Sales
Such statement would help to study and analyze the performance of the company.
ADVANTAGES
The following are the advantages of Common-Size statements:
a) Common size analysis reveals the source of capital and all other sources of funds and the distribution or use of application of the total funds in the assets of a business enterprise.
b) Comparison of common-size statements over a number years will clearly indicate the changing proportions of the various components of assets, liabilities, costs, net sales and profits.
c) Comparison of common-size statements of two or more enterprise in the same industry or that of an enterprise with the industry as whole, will assist corporate evaluation and ranking.
DISADVANTAGE
a) Comparative common-size statements do not show variation in various account items from period to period.
b) If financial statements of a particular business organization are not prepare year after year on a consistent basis, comparative study of common –size statements will be misleading
c) Common-size statements are regarded by many as useless as there are no established standard proportions of an asset to the total assets or of an item of expense to the net sales.
d) Similarly, in the absence of third-dimensional consistency, comparative study of common-size statements of two or more business entities will be meaningless.