What is the balance sheet of common size?

common size is an alternative form of traditional financial statement of traditional balance sheet. If normal balance sheet expresses information as a total financial data for a specific period of time, the balance sheet of common size is displayed as a percentage of the total value for the financial information class. For example, if the company states $ 1,000 in the US (USD) in receivables and total balance sheet assets of $ 8,000, a common size statement would show receivables as 12.5 percent (1,000 /8,000). Each part of the balance sheet - assets, obligations and own capital or undivided earnings - are introduced in this way. Each part will include a total value, so managers can determine the amount of assets, obligations and equity in their relevant companies. Use the above numbers to assume that the following will appear on the normal Sheet balance: $ 1,200 in cash, $ 1,000 receivables, $ 5,000 inventory and $ 800 tradable securities. BalanceAnd common size would show this information as 15 percent of cash, 12.5 percent of receivables, 62.5 percent of stocks and 10 percent in tradable securities, a total of 100 percent.

Creating a common size can help owners and managers spend less time reviewing the financial information of their companies. Although it is important to know the overall value of the items in dollars, representing them as a percentage allows owners and managers to find out where the company has as much cash as possible. For example, a large amount of stocks may indicate lower money balances. Receivables from high accounts may be lower cash and inventory balances because companies sell more goods rather than cash sales. Liabilities can also tell similar stories. A significant increase in payable accounts, credit lines or other short -term banknotes may indicate thatThe company needs external financing for its operations. This situation can create difficult future cash flows and other business situations in the coming years.

The balance sheet of common size also allows business owners and managers to examine their long -term assets, long -term mortgages or notes due and information about equity. Although these accounts do not necessarily focus on short -term purposes, a significant increase or decrease in these items may be a reason for concern. In addition, common size financial statements allow owners and managers the ability to compare the financial statements of their companies with the competition. By introducing both statements in the percentage form, the comparison can quickly point out which society is weaker or stronger in certain areas.