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.

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.