Question

To convert a balance sheet into a commonsize balance sheet statement, we restate all the numbers as percentages of ________. a. total liabilities b. total assets c. total owners' equity d. revenue

Answer 1

To convert a balance sheet into a common-size balance sheet statement, we restate all the numbers as percentages of total assets. A common-size financial statement shows line items as a percentage of a selected or normal figure. Creating common-size financial statements makes it easier to analyze a company over time and compare it to its peers. Using common-size financial statements helps you spot trends that a raw financial statement might not reveal.

All three primary financial statements can be laid out in a common-size format. Dollar amount financial statements can easily be converted to common-size financial statements using a spreadsheet. Below is an overview of each financial statement and a more detailed summary of the advantages and disadvantages such analysis can provide you.

Learn more about common-size financial statements:

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