Common Size Statements

Common Size Statements



The common size statements (Balance Sheet and Income Statement) are shown in analytical percentages. The figures of these statements are shown as percentages of total assets, total liabilities and total sales respectively.

Techniques of Preparing common-Size Statement



For preparing a Common-Size Income Statement

Total Sales/ Revenues are taken as 100. Each individual component of cost/expenses are expressed as a percentage of total sales/revenues. Gross Profit/Net profit should also be expressed as percentage of total sales/revenue.

Techniques of Preparing common-Size Statement



For preparing a Common-Size Balance Sheet

Total Assets/total Liabilities are taken as 100. Each individual component of assets are expressed as a percentage of total assets. Each individual components of liabilities are expressed as a percentage of total liabilities.

Format of Common-Size Income Statement

Particulars Absolute Figures 2005 2006 Percentage of Net Sales 2005 2006

Gross Sales Less: Sales Return Sales (Net) Less: Cost of Goods Sold Gross Profit Less: Operating Expenses: Office and Administration Selling and Distribution Net Operating Profit

Particulars

Absolute Figures

Percentage of Net Sales 2005 2006

2005

2006

Add: Other Incomes Less: Income Tax Earnings after Tax

Illustration


Following Trading and P&L Account was presented by XYZ Ltd for the year ended 31.12.2007. You are requested to prepare a common-size Income Statement.

Trading & P&L Account for the year ended 31.12.2007

Rs.

Rs.

To Opening Stock To Purchase To Wages To Gross Profit

200 600 200 400 1400 50 150 100 30 50 120 500

By Sales By closing Stock

1200 200

1400 By Gross Profit By Profit on Sale of Land & Building 400 100

To Depreciation To Office & Admin Expenses To Selling & Distribution Expenses To Interest on Debentures To Income- Tax To Net Profit

500

Common-size Income Statement for the year end on31.12.2007

Particulars Rs. Absolute Figure Rs. 1200 800 400 150 100 50 Percenta ge of Net Sales 100 67 33

Sales Less: Cost of Goods Sold Gross Profit Less: Operating Expenses: Office & Admin. Selling & Distribution Depreciation Operating Profit

300 100

25 8

Common-size Income Statement for the year end on31.12.2007

Particulars Rs. Absolute Figure Rs. 100 200 30 170 50 120 Percenta ge of Net Sales 8 16 2.5 13.50 4.17 9.33

Add :Profit on Sale of Land & Building Net Profit before Interest Less: Interest Net Profit before Tax Less: Income- Tax Net Profit After Tax (PAT)

Eg.. Common Size balance Sheets

Absolute Figures 2005 Rs. Asset Fixed Assets Investments Current Assets Liabilities Equity share Capital 8% Preference Share Capital Reserves & Surplus Secured Loans Unsecured Loans Current Liabilities and Provisions 50000 20000 30000 100000 50000 10000 10000 10000 5000 15000 100000 2006 Rs. 70000 20000 40000 130000 50000 10000 20000 20000 10000 20000 130000 Percentage of Balance sheet Total 2005 % 50 20 30 100 50 10 10 10 5 15 100 2006 % 54 15 31 100 38 8 15 15 8 16 100

Trend Analysis


The trend analysis is a technique of studying several financial statements over a series of years. In this analysis the trend percentages are calculated for each item by taking the figure of that item for the base year taken as100.

Eg.


From the following particulars presented by Prafulla ltd. For the years 2004,2005,2006 and 207, you are asked to calculate the trend percentage/ratio taking 2004 as the base year:

Income Statement in the year ending 31st March 2004 2005 Rs. Rs. Sales Less: Cost of Goods Sold Gross profit Less: Operating Expenses Operating Profit Less: Interest PBT Less: Tax 50 % Profit After Tax 1000 1250 600 750 400 500 200 250 200 250 50 40 160 200 80 100 80 100 2006 Rs. 2000 1200 800 300 500 100 400 200 200 2007 Rs. 2500 1500 1000 400 600 150 450 225 225