A common size financial statement is an important tool used by financial analysts to help them compare different companies, industries, or time periods. The purpose of a common size financial statement is to enable analysts to make comparisons between companies that differ in size and industry. It does this by expressing each entry in a financial statement as a percentage of a common base figure rather than as an absolute numerical figure.

Common size statements typically include the income statement, balance sheet, and cash flow statement. On an income statement, each income and expense account is listed as a percentage of total sales or total revenues. For example, Gross Profit might be listed as 80% of total sales, meaning it appears on the income statement as 0.8.

The balance sheet is similarly displayed as a percentage of total assets. This format helps analysts compare the relative size of different asset accounts, such as Cash & Equivalents, Accounts Receivables, or Fixed Assets.

The cash flow statement can be displayed as a percentage of operating cash flow or, in some cases, as a percentage of total net income. The format allows analysts to examine the liquidity of a company and determine whether it is generating sufficient cash flow to meet its obligations.

Common size financial statements are a powerful tool used by analysts to compare financial performance across different companies, industries, or time periods. The format allows users to make accurate comparisons between entities that differ in size, sector or time period. This helps analysts identify trends and make informed decisions about future investments.