Common Size Statements
Common Size Statements
Common Size Statements
Analysis)
& Horizontal Analysis
(Trend Analysis)
V.Ravichandran
What is a Common-size Financial Statement?
• Horizontal analysis focuses on the dollar and percentage changes that occur in
specific accounts from year to year.
• Determining the percentage change is important because it links the degree of
change to the actual amounts involved. In this way, percentage changes are
better for comparative purposes with other firms than are actual dollar changes.
• For example, a $1 million increase in General Motors' cash balance is likely to
represent a much smaller percentage increase than a corresponding $1 million
increase in American Motors' cash balance.
• To calculate percentage changes, you can use the following formula:
• Percentage change = (Amount of dollar change / Base year amount) x 100
Horizontal Analysis
• The base year is always the first year in the comparison.
• For example, suppose that Safeway's total current assets were
$1,729,146,000 in 2018 and $1,861,389,000 in 2019.
• This represents a dollar increase of $132,243,000 and a percentage
increase of 7.65%, which is calculated as follows:
• Percentage change = ($1,861,389,000 - $1,729,146,000 /
1,729,149,000) x 100
• = 7.65%
Benefits of Horizontal Analysis