What is Common Size Balance Sheet?
A common size balance sheet is a financial statement that presents the financial position of a company as a percentage of a specific base value, usually total assets. This allows for easy comparison of financial ratios and trends between companies. The common size balance sheet is a useful tool for analysts to identify areas of strength and weakness, and to assess the overall financial health of a company. To create a common size balance sheet in Excel, you need to follow these steps:- Open the Excel spreadsheet containing the balance sheet data.
- Enter the total assets value in a cell, usually at the bottom of the balance sheet.
- Format the cell as currency and lock it to prevent changes.
- Create a new column to the right of the balance sheet to calculate the common size percentages.
- Use the formula =((each account value/total assets)*100) to calculate the common size percentage for each account.
Benefits of Common Size Balance Sheet
- Easy comparison of financial ratios and trends between companies.
- Identification of areas of strength and weakness in a company's financial position.
- Assessment of a company's overall financial health and performance.
- Ability to benchmark a company's financial performance against industry averages.
| Account | Company A | Company B |
|---|---|---|
| Cash | 10% | 20% |
| Accounts Receivable | 15% | 18% |
| Inventory | 20% | 22% |
| Property, Plant, and Equipment | 30% | 25% |
| Total Assets | 100% | 100% |
Common Size Balance Sheet Templates
- Microsoft Excel templates: Microsoft provides a range of common size balance sheet templates that can be downloaded from its website.
- Google Sheets templates: Google provides a range of common size balance sheet templates that can be downloaded and used in Google Sheets.
- Online financial analysis tools: There are several online financial analysis tools that offer common size balance sheet templates and calculators.
- Download the template from the website or online tool.
- Enter the company's balance sheet data into the template.
- Customize the template to suit the company's needs.
Common Size Balance Sheet Analysis
Common size balance sheet analysis involves comparing the financial position of a company to its peers or industry averages. This can be done by using a common size balance sheet template or by manually calculating the common size percentages. Some common size balance sheet analysis techniques include:- Ratio analysis: This involves comparing the company's financial ratios to its peers or industry averages.
- Benchmarking: This involves comparing the company's financial performance to industry averages.
- Industry comparison: This involves comparing the company's financial performance to its peers in the same industry.
| Account | Company A | Industry Average |
|---|---|---|
| Cash | 10% | 12% |
| Accounts Receivable | 15% | 18% |
| Inventory | 20% | 22% |
| Property, Plant, and Equipment | 30% | 25% |
| Total Assets | 100% | 100% |