How Is a Common Size Income Statement Prepared?

A common size income statement is a financial statement that presents the components of an income statement as a percentage of the total revenue, allowing for meaningful comparisons across different time periods or between companies of varying sizes. To prepare a common size income statement, gather the income statement for the desired period, calculate the revenue percentage, divide the total revenue by each line item, list line items and their respective percentages, analyze and interpret the results, and compare with historical data or industry benchmarks. This helps to highlight the relative importance of different components within the income statement and provides a clearer picture of a company’s financial performance. It can be a useful tool for financial analysis, budgeting, and decision-making.