Common Size Analysis

Common Size Analysis is available from the Topics menu of the viewer:

Common Size Analysis of the Balance Sheet can highlight some important issues such as: 
What is the composition of assets (real versus financial assets)?
What is the financing composition (debt versus equity)?
How does the asset composition change over time?
Has the financing composition changed over time?
What does a strong versus a weak balance sheet look like?

      Example: Common Size Analysis using Total Assets for Apple
When you select Common Size Analysis from the Topics menu of the viewer, the middle part of the screen splits into two sections. The left part displays the statement, as before, and other lets you select how to scale variables.

Scaling has two parts:

·       What variable to scale by

o The base statement is scaled by a variable from the “scaling statement”

o For example (as in the picture), you can scale everything on the statement by Total Assets, so the scaling statement is also the balance sheet

·     What time period to use for the scaling

o The yellow squares map time. In what is shown, the Dec 31, 2011 variables will be scaled by Total Assets taken the Dec 31, 2011. By clicking on the square, you could, for example, scale the variables on the Dec 31, 2011 balance sheet with Total Assets from the Sep 24, 2011 statement:


      Once you select a scaling statement and a scaling variable, the values in the base statement are shown as percentages.
      Going back to the chart, scaling by total assets as shown:
      Some immediate observations jump out. First, Property, Plant and Equipment is not very important to Apple. This reflects the fact that manufacturing hardware such as the Apple iPhone is outsourced. But the relative importance of Financial Assets is very high; the big spike in the chart is “Long term marketable securities.” So in the composition of Total Assets, financial assets play a bi there is a much greater emphasis upon financial as opposed to real assets for Apple.

      You can also see that this trend has increased over time: PPE is declining while Apple’s financial assets are growing as a percentage of Total Assets. The chart also shows that Apple’s working capital assets, such as inventory and accounts receivable, increased over time.

      Similarly, you can look liabilities and shareholder’s equity as a percentage of total assets

      You can see that Apple has no debt and the composition is heavily skewed toward current liabilities (long term liabilities are approximately 10% of total liabilities). Compared to Total Assets, Apples total liabilities are low, less than 40% implying that the stockholders’ equity is relatively large (65%). You can see the changing composition and the percentages in the pie chart: