This method is used to know the change of trend in the data of different accouns shown in balance sheet and in income statements in proportion of assets and in proportation of total sales of a business unit.
In this method, the following points are included :
- Comparison of balance sheet and income statement are done for two years or more than two years.
- Net sales is taken as base for income statement and total of balance sheet is taken as base for balance sheet. It is considered as 100%.
- In income statement, precentage found for revenue, expenses and taxes for both previous and current year.
- Difference of both year percentage is used for analysis and interpretation.
- In balance sheet, precentage of both year (previous and current) for each liabilities and for each assets are found out.
- This statement is also known as 100 percentage statement.
- This analysis is done in the vertical form. Thus, it is known as vertical analysis of financial statements.
- By following formulas missing data are found out.
Common Size Statement of Profit and Loss Statement :
- Proportion of Revenue/expenses to Sales = \(\frac{ Amount \,of\, revenue/expenses}{ Amount \,of\, total\, sales \,in\, rupees } × 100\)
- Revenue/expenses amount in rupees = \(\frac{Total \,amount \,of\, sales × Percentage \,of \,revenue/expenses}{ 100}\)
