Business Journalism

Boot Camp

Common Size Analysis

Oct. 4 , 2011

Common Size Analysis

Donald W. Reynolds National Center For Business Journalism At Arizona State University

Common Size Analysis

James K. Gentry, Ph.D. Clyde M. Reed Teaching Professor School of Journalism and Mass

Communications University of Kansas jgentry@ku.edu

Common Size Analysis

Common Size Analysis A technique that turns all financial

statement entries into percentage of revenue

Then can look at percentage change and percentage point change

Common Size Analysis

Why Common Size Identify trends Identify what causes changes in totals

on financial statements Easier to compare percentages than

raw numbers Easier to compare companies Easier to compare company with

industry averages

Common Size Analysis

Doing Common Size For IS, divide Revenue into all entries. For BS, divide each total category into

its category items. For example, divide Total Assets into each category of assets.

For CF, divide each total category into its category items.

Common Size Analysis

Comparable Statements Often have to restructure Income

Statement to the In-the-Box format we studied

Typical problems come from items we would consider Other Income/Expenses

Common Size Analysis

Trends in Margins How have Cost of Goods Sold and

Sales, General & Administrative changed?

What does that mean for Gross Profit and Operating Profit?

How does Net Profit Margin move? Value of using Basis Points

Common Size Analysis

Common Size, Ratios These techniques let you drill below the

surface and start developing a more complete picture of the company’s performance Strengths Weaknesses Strategic effectiveness of the firm