common size statement analysis pdf by Manikanta
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This document discusses common size statements, which convert financial statement figures into percentages of a common base for comparison. It defines common size statements and explains their objectives are to study trends in income/expense items and changes in individual income statement items. Formulas for calculating common size percentages are provided. The key types are common size income statements and balance sheets. Examples of common size income statements and balance sheet formats are shown, along with an example income statement. Advantages include ease of understanding and comparing performance over time or between firms. Limitations include not accounting for changes in price levels or accounting standards.
common size statement analysis pdf by Manikanta
- 1. COMMON SIZE STATEMENT ANALYSIS BY SABA FARHEEN AND MANIKANTA.M ---TKR INSTITUTE OF MANAGEMENT AND SCIENCE HYDERABAD
- 2. COMMON SIZE STATEMENT ❖ Common size financial statements are those in which figures reported are converted into percentage to some common base for this purpose, items of financial statements are calculated and percentage to the total items of financial statement are calculated and presented as percentage to the total items. Thus a common base for comparison is provided. Each percentage shows the relation of the individual item to the respective total. ❖ A company financial statement that displays all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company.
- 3. OBJECTIVES OF COMMON SIZE STATEMENT ❖ To study the change in individual items of income statement ❖ To study the trend in different item of income and expenses Types of common size financial statement 1) Common size income statement 2) Common size balance sheet COMMON SIZE FINANCIAL STATEMENT COMMON SIZE INCOME STATEMENT COMMON SIZE BALANCE SHEET
- 4. FORMULA FOR COMMON SIZE ANALYSIS Common size financial statement analysis is computed using the following formula amount of individual term Percentage of base = _________________________ * 100 amount of base item
- 5. COMMON SIZE INCOME STATEMENT In common size income statement the values of all the income statement is converted in to the percentage terms to the common base i.e., sales which is taken as equal to 100%. It provides a common base (sales=100%) through which we can calculate the contribution of cost and find out their efficiency and compare a firm’s efficiency with that of another firm of similar nature of operating activity.
- 6. FORMAT OF COMMON SIZE INCOME STATEMENT Particulars Amount Rs. 2017 Amount Rs.2018 2017 (%) 2018 (%) Revenue Xxx Xxx Xxx Xxx Cost of goods sold Xxx Xxx Xxx Xxx Gross profit Xxx Xxx Xxx Xxx Expenses Office expenses Xxx Xxx Xxx Xxx Depreciation & Amortization Xxx Xxx Xxx Xxx Interest Xxx Xxx Xxx Xxx Advertising Xxx Xxx Xxx Xxx Total expenses Xxx Xxx Xxx Xxx Profit before tax Xxx Xxx Xxx Xxx Taxes Xxx Xxx Xxx xxx Net profit Xxx Xxx Xxx Xxx
- 7. COMMON SIZE INCOME STATEMENTOF XYZ LTD. Particulars 2017 Amt (Rs.) 2017 % 2018 Amt(Rs.) 2018 % Revenue/sales 8,00,000 100 12,00,000 100 Cost of sales 6,00,000 75 9,00,000 75 Gross profit 2,00,000 25 3,00,000 25 Expenses Office expenses 5,000 0.63 5,500 0.45 Depreciation & Amortization 2,500 0.31 2,000 0.17 Interest 1,000 0.12 2,200 0.18 Advertising 3,000 0.38 4,500 0.38 Total expenses 11,500 1.44 14,200 1.18 Profit before tax 1,88,500 23.56 2,85,800 23.82 Taxes 47,125 5.89 71,450 5.95 Net profit 1,41,375 17.67 2,14,350 17.86
- 8. COMMON SIZE BALANCE SHEET In the common size baance sheet the total balance ( total assets or total liabilities) is taken as 100% and each element of balance sheet is represented as a fraction of respective total. When different periods data are represented then a trend of each element of balance sheet can be obtained. For example;- each element on the asset represent in the form of percentage of total asset ( total assets = 100%) and each element of liability represented in the form of a percentage of total liability (total liability = 100%)
- 9. FORMAT OF COMMON SIZE BALANCE SHEET
- 10. FORMAT OF COMMON SIZE BALANCE SHEET
- 11. COMMON SIZE BALANCE SHEET FOR XLTDAND Y LTD
- 12. ADVANTAGES OF COMMON SIZE STATEMENT It is very easy to understand in one look It helps to develop a time series and its analysis of each element of financial statement Very easy to compare inter-firm as well as intra- firm performance and financial position with the help of common size statement
- 13. LIMITATIONS OF COMMON SIZE STATEMENT It doesn’t depict the effect of change in the price level of different elements like raw material, wages, etc. which leads to increase or decrease in the cost of goods sold(cogs) value, expenses, etc. If accounting standards applied or methods of accounting is changed between different years or if these are different firms then doesn’t provide a true comparison. If there is huge profit or loss due to seasonal fluctuation or business cycles then it doesn’t provide a true comparison.
- 14. REFERENCES :- BOOKS :- Financial accounting which is written by SP. Jain o WEBSITE :- http://www.commonsizestatement.com/wikipedia http://www.investopedia.commonsizestatement/
- 15. Thank you!