Common Size Financial Statements: How to Compare Companies in 2025

In a world where numbers often tell only part of the story, the art of financial analysis has become crucial for both investors and business owners. Common size financial statements, once a back-office staple, are now a front-line tool for making sense of complex financial data. In 2025, with regulatory updates and the ever-changing economic climate in Australia, knowing how to read and use these statements is more valuable than ever.

What Are Common Size Financial Statements?

Common size financial statements transform the raw numbers of a traditional balance sheet or income statement into percentages. Instead of simply presenting figures, each line item is shown as a proportion of a key total—typically total assets for the balance sheet and total sales for the income statement. This approach strips away the bias of company size, making apples-to-apples comparisons much easier.

• Income Statement: Every item (cost of goods sold, operating expenses, etc.) is shown as a percentage of total sales.

• Balance Sheet: Each asset, liability, and equity item is a percentage of total assets.

For example, if Company A has $500,000 in sales and spends $250,000 on cost of goods sold, its common size COGS is 50%. Whether a company sells $500,000 or $5 million, this ratio offers a clear comparison.

Why Use Common Size Statements in 2025?

The value of common size statements goes beyond mere simplicity. In 2025, several trends and policy updates make this method more relevant for Australians:

• New Sustainability Reporting: With Australia’s phased adoption of climate-related financial disclosures, companies now present more non-financial data. Common size analysis lets investors see how sustainability initiatives affect expenses and profitability over time.

• SME Benchmarking: The Australian Taxation Office (ATO) continues to release industry benchmarks. Small and medium businesses can use common size statements to compare themselves against sector averages, identifying red flags or competitive advantages.

• Cross-Border Comparison: As more Aussie businesses eye global markets, common size statements neutralise differences in currency and scale, making international comparisons more meaningful.

Real-World Applications: How Australians Are Using Common Size Analysis

Let’s look at how common size statements are making a difference in practice:

• Investor Due Diligence: An investor considering two listed Australian retailers can use common size income statements to compare gross margins, operating expenses, and net profit ratios—regardless of the companies’ size. This reveals which business runs more efficiently or invests more heavily in growth.

• Business Owners Diagnosing Issues: A café owner in Sydney compares their cost structure to ATO benchmarks. They notice their wages are 45% of sales (vs. the industry average of 33%), prompting a review of staffing levels or menu pricing.

• Tracking Trends Over Time: By preparing common size statements each quarter, a manufacturer can spot creeping increases in input costs or shifts in asset allocation, reacting before problems escalate.

Even lenders and credit analysts are turning to common size statements to assess whether a business’s financial structure is sustainable in light of rising interest rates and inflationary pressures in 2025.

How to Prepare and Use Common Size Statements

Creating common size statements is straightforward, but maximising their value takes some savvy:

• Gather the Latest Financials: Use the most recent income statement and balance sheet.

• Calculate Percentages: Divide each line item by the relevant total (sales or assets).

• Benchmark: Compare results with industry averages, prior years, or competitors.

• Investigate Variances: Large deviations from norms may indicate operational strengths, inefficiencies, or risks.

Tip: In 2025, many Australian accounting software platforms now include automated common size reporting, making this analysis accessible to businesses of all sizes.

Conclusion

Common size financial statements are more than a tidy way to present data—they’re a lens for sharper, smarter financial decision-making. Whether you’re investing, running a business, or simply trying to understand what’s driving profitability, these statements offer vital clarity in an increasingly complex world.