Tips on Balance Sheet and Financial Ratios Research

Typical and Common Size Balance Sheet Benchmarks

1. Balance Sheet benchmarking involves the use of two different but related formats: the “typical balance sheet” (dollar figures) and the “common-size balance sheet” (percentages). The balance sheet forms the basis for all traditional financial ratios.

2. The typical balance sheet is comprised of a series of dollar-based line items beginning with actual annual sales reported by the total universe of firms in the analysis pool. The typical balance sheet is a useful tool for comparison of the scale of a given firm against averages for the industry and its Small Business and Startup segments. BizMiner Industry Financial Profiles are offered in these three versions in order to facilitate this segmented analysis. More on these segments in the BizMiner Financial Analysis Edge #1.

3. By looking at the typical balance sheet, it is possible to understand average sales and three-year average sales trends in the analyzed industry segment. After integration with the closest common-size segment match, average firm profit and other dollar-based balance sheet and income statement line items are developed.

4. The common-size balance sheet is comprised of percentages, which represent a portion of the aggregate dollar total of those firms in the analysis pool for which total balance sheet information is identified. This is a smaller number than the total segment pool for which annual sales data is reported and computed for the typical balance sheet. In some cases, common size balance sheet data for the closest available segment at the four-digit industry level is integrated with the specific eight digit sales data to develop the balance sheet benchmarks.

5. The percentage-based common-size balance sheet facilitates comparison of acceptable line item ranges among firms with varied sales volumes. The common-size balance sheet may be different for firms of various size or other characteristics, adding to the value of the Small Business and Startup versions of BizMiner Financial Analysis Profiles. In other cases, the relatively small number of firms in a given segment does not allow for differentiation of the common-size balance sheet among small businesses, and the industry total. The common-size balance sheet among small businesses and startups is usually identical, although the typical (dollar-based) figures will differ.

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