Understanding a Report by Means of Common-Sizing
A common-sized report typically expresses every dollar category as a percentage of some other dollar category. Doing so enables you to more easily compare, for example, a company's present year with a prior year, or one company with another, or a company with an industry composite.
It's conventional, for example, to common size an income statement by dividing each entry by the total sales for the period covered by the statement. Doing so converts each dollar figure, from cost of goods sold to operating income to income taxes to operating expenses, to its percentage in terms of total sales.
The rationale for common-sizing in terms of total sales is that most of a company's activities depend on its ...
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