Evaluation of Common Size Percentage

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Evaluation of Common Size Percentage

Report a percentage per component shows the percentage of total assets invested in each type of asset. By studying the report in this percentage and compares with an average of the industry as a whole than similar companies, will be known whether we invest in something assets have exceeded the limits of generally accepted (over the investments) or it is still too small (under investment) brother "so for the next period we can take the necessary policies, so that matches our investment in assets is not too small or too big.

Statements in this way also shows the distribution rather than debt capital, so it shows the sources from where funds are invested in such assets. About this study will show which sources indicate to what extent the company uses its ability to obtain credit from outside sources, because of it also can be suspected / known how much the margin of safety which is owned by the creditors.

Percentage per component contained in the balance sheet would be a component percentage of total assets, so that comparisons horizontally from year to year will only show a trend rather than the relationship (trend of relationship) and does not indicate whether or not absolute changes in can be seen if returned to absolute data. So change from year to year does not indicate with certainty the changes in the absolute data.

Report a percentage per component in relation to the income statement, showing the number or percentage of net sales or net sales each individual cost and the percentage that are still available for income. Therefore, the common size percentage analysis is widely used by companies in relation to the income statement, because of the close relationship between sales, cost of goods and operating costs, are not widely used to balance. Next.

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Healthy | Smart | Rich, at: 5/29/2011

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