What are common-size financial statements?

Summary
The article talks about the basic knowledge of Common-size financial statement, which includes the common-size income statement and the common-size balance sheet. In order to better explain these two statements, the article uses a lot of examples. Such as “if Cash was $80,000 and Total Assets were $1,000,000 then Cash will appear as 8% and Total Assets will appear as 100%.” The article use $1,000,000 as the total assets, which is very simple to convert the entire amount into percentage. For example, if the cash is $80,000, so 80000/1000000 is 0.08, which is 8%.

Connection
In the textbook chapter 15.2, we can find the introduction of these two kinds of common-size financial statement. I think the textbook has more details about these two statements. Common-size financial statement is a pretty good way to compare the two companies. The size of the company will not affect the common-size statement, because all the amounts are converted into percentage, and percentages have the same radio, no matter how large the amount is. Therefore, comparing the companies becomes very simple. Even ordinary people could understand the statements and make decision to invest the company.

Reflection
It is very important that compare the companies, because no one wants to buy a company which cannot earn money. Somehow, even though the company is earning money, but if it doesn't have the ability to pay off the loan, this is not a good company that we should invest. Comparing the percentages is easier than the numbers. Percentages are under the same radio, the amounts of the number could not affect them. So this is the fairest method of comparison. Sometimes a high percentage doesn't mean good. For example, debit ratio must be lower than 20 to 30%. If it is higher than 30%, which means the company has too many liabilities. This is not a good situation.
Article: http://blog.accountingcoach.com/common-size-financial-statements/