How to Interpret a Common Size Balance Sheet

Financial statements are critical in determining the financial health of a company. The balance sheet is where you will find information about a company's assets held and liabilities owed. A balance sheet indicates how a company is performing at a specific period of time. A common size balance sheet is the same as a regular balance sheet. In a common size balance sheet values are listed as a percentage of total assets. Knowing the accounting equation assets-liabilities=owner's equity, makes reading the common size balance sheet much easier. If you want to know if a company is thriving, the common size balance sheet makes for easy analysis when comparing one company to another.

Difficulty: Moderate

Instructions

1. The first thing you must do is understand the terms. You need to know the meaning of terms like accounts receivable or notes payable. Below you'll find a link that gives definition to typical accounting terms.

2. The company information should appear on the very top of the balance sheet. Name of the company, the date and title of the financial statement should be the first thing you look for.

3. Look at the asset column. Notice the various assets and their amounts. Cash, accounts receivable, property and notes receivable are common assets. Add the numbers in the asset column of the balance sheet. Check your total against the company's total.

4. Look at the liabilities column. Notice the amounts of the various liabilities. Notes payable and accounts payable are two common liabilities. Again, check your totals against the company's balance sheet totals.

5. Remember the accounting formula, assets-liabilities=owner's equity. With the assets and liabilities totals from the balance sheet, you can assess how much equity is in your company.

Resources

• Balance Sheet Interpretation
• Balance Sheet Basics
• Glossary of Terms