COMMON-SIZE BALANCE SHEET
COMMON-SIZE BALANCE SHEET
Common-size Balance Sheet shows the
percentage relation of each asset/liability to total assets/total liabilities
including capital (i.e., equity and liabilities). In Common-size Balance Sheet,
total assets or total equity and liabilities are taken as 100 and all the
figures are expressed as percentage of the total. Comparative Common-size
Balance Sheet for different periods helps to highlight the trends in different
items. If it is prepared for different firm in an industry, it facilitates to
assess the relative financial soundness and helps in understanding their
financial strategy.
v
Objectives of Common-size Balance Sheet.
To
analyse the changes in individual items of Balance Sheet.
2.
To see the trend Of different items of assets, equity and liabilities.
3.
To assess the financial soundness and understand financial strategy.
Preparation of Common-size Balance Sheet: - Common-size Balance
Sheet is prepared by taking the following steps:
·
First Column: In this column, items
of Balance Sheet are written.
·
Second Column: In this column, Note
number given against the line item is written.
·
Third Column: In this column, amounts
01 different items (assets/liabilities) of previous year are written. Fourth
Column: In this column, amounts of different items (assets/liabilities) of
current year are written. Fifth Column: In this column, percentage relation of
different items of previous year's Balance Sheet to total of Equity and
Liabilities/Total Assets are written.
·
Sixth Column: In this column,
percentage relation of different items of current year's Balance Sheet to total
of Equity and Liabilities/Total Assets are written.
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