A common-size financial statement expresses each line item of a financial statement as a percentage of a base item of that statement, either of a single company over two periods or of two companies over the same period. A common-size balance sheet shows each line item on the balance sheet divided by total assets expressed as percentages. A common-size income statement shows each line item divided by total net revenues expressed as percentages.
| Common-Size Statement over Three Years – Assets (Example) | |||
| Item | Year 1 | Year 2 | Year 3 |
| Cash | 10.31% | 10.11% | 9.34% |
| Accounts Receivable | 10.44% | 10.61% | 10.54% |
| Inventory | 3.25% | 4.17% | 4.02% |
| Plant and Equipment, Net | 76% | 75.11% | 76.1% |
| Total Assets | 100% | 100% | 100% |
Horizontal analysis is a financial statement analysis technique used to compute total and relative changes in amount of the line items of financial statements – income statements, balance sheets and statements of cash flows – over two or more periods of in order to evaluate trends. The periods under consideration can be months, quarters or years.
| Horizontal Analysis over Three Years – Assets (Example) | |||
| Item | Year 1 | Year 2 | Year 3 |
| Cash | 100.00% | 101.00% | 102.01% |
| Accounts Receivable | 100.00% | 102.00% | 104.04% |
| Inventory | 100.00% | 103.00% | 106.09% |
| Plant and Equipment, Net | 100.00% | 103.08% | 108.16% |
| Total Assets | 100.00% | 103.08% | 106.27% |
Absolute comparison is horizontal analysis that compares the absolute currency amounts of items over two or more time periods, while percentage comparison compares the percentage differences in certain items over time. Where horizontal analysis is extended to three or more periods and the trends are shown in both amount and percentage in reference to the first period in the sequence, trend analysis is performed.
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