Describe the process for developing the common size statements and illustrate, using a company of your choosing, the development and interpretation of this analysis. Once the common size statements are developed, what comparisons (of the metrics in the common size statements) seem relevant in generating meaningful conclusions? Discuss.
See the attached Excel file.
Common size statements:
Common size statement is a financial document which shows the relationship of one figure as a percentage of another figure.
Process of developing common size statements:
In case of common size analysis of income statement, income statement of the year for which analysis needs to be done should be taken. Sales revenue for the year is taken as 100% and each item in the income statement is expressed as a percentage of net sales. That is it shows how each rupee earned as sales revenue has been spent and has been earned as profit. For example, if the sales revenue of the company ...
The solution discusses the process for developing the common size statements.