What is a Common Size Balance Sheet?

A common size balance sheet displays the numeric and relative values of all presented asset, liability, and equity line items. The order of presentation of this balance sheet is the same as the one used for a normal balance sheet, where assets are listed first, then liabilities, and then equity. The main difference between a normal balance sheet and a common size one is that percentages are included next to the numeric values, showing the proportion of each line item as a percentage of total assets.

The common size balance sheet is not required under GAAP or IFRS. However, being a useful document for analysis purposes, it is commonly distributed within a company for review by management, and may be found as a standard report template in many commercially-available accounting software packages.

When to Use a Common Size Balance Sheet

The common size balance sheet format is useful for comparing the proportions of assets, liabilities, and equity between different companies, particularly as part of an industry analysis or an acquisition analysis. It is extremely useful to construct a common size balance sheet that itemizes the results as of the end of multiple time periods, in order to construct trend lines to ascertain changes over longer time periods.

For example, if you were comparing the common size balance sheet of your company to that of a potential acquiree, and the acquiree had 40% of its assets invested in accounts receivable versus 20% for your company, that may indicate that aggressive collection activities could reduce the acquiree's receivables if your company were to acquire it (subject to the existence of any special problems with the customers of the acquiree).

Another possible use of this format is within a benchmarking study. A company could benchmark its financial position against that of a best-in-class company by using common size balance sheets to compare the relative amounts of their assets, liabilities, and equity. Any significant differences would trigger a detailed review of the reasons for the differences, which may lead to the implementation of best practices to bring the financial position of the company into alignment with that of the best-in-class company.

Related AccountingTools Courses

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How to Format a Common Size Balance Sheet

There is no mandatory format for a common size balance sheet, though percentages are nearly always placed to the right of the normal numerical results. If you are reporting balance sheet results as of the end of many periods, you may even dispense with numerical results entirely, in favor of just presenting the common size percentages.

Example of a Common Size Balance Sheet

Here is an example of a common size balance sheet that contains the balance sheet as of the end of a company's fiscal year for each of the past two years, with common size percentages to the right:

ABC International
Statement of Financial Position

 
($)
as of
 12/31/20X2
($)
as of
 12/31/20X1
(%)
as of
 12/31/20X2
(%)
as of
 12/31/20X1

Current assets
 
 
 
 

Cash
$1,200
$900
7.6%
7.1% 


Accounts receivable
4,800
3,600
30.4%
28.3%

Inventory
3,600
2,700
22.8%
21.3%

Total current assets
$9,600
$7,200
60.8%
56.7%

Total fixed assets
6,200
5,500
39.2%
43.3%

Total Assets
$15,800
$12,700
100.0%
100.0%

 
 
 
 
 

Current liabilities
 
 
 
 

Accounts payable
$2,400
$1,800
15.2%
14.2%

Accrued expenses
480
360
3.0%
2.8%

Short-term debt
800
600
5.1%
4.7%

Total current liabilities
$3,680
$2,760
23.3%
21.7%

Long-term debt
9,020
7,740
57.1%
60.9%

Total liabilities
12,700
10,500
80.4%
82.7%

Shareholders’ equity
3,100
2,200
19.6%
17.3%

Total liabilities and equity
$15,800
$12,700
100.0%
100.0%