Common-size analysis

Definition

Common-size analysis in plain English

Common-size analysis is a trick for comparing companies of wildly different sizes fairly. Instead of looking at raw dollars, you turn every line into a percentage of one base number, for example every cost on the income statement as a percentage of total sales. That way a corner store and a giant chain can be laid side by side, because you're comparing shapes rather than sizes, like comparing two recipes by percentages instead of by total pounds of ingredients. It instantly shows where a company spends more or less of each sales dollar than its rivals.

Related Principles of Finance terms

• Agency bond
• American option
• Arbitrage pricing theory (APT)
• Asset-backed security (ABS)
• Basis risk
• Bid-ask spread
• Bookrunner
• Carhart four-factor model
• Clientele effect
• Collateralized debt obligation (CDO)