From the course: Financial Accounting Foundations

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Common size statements

Common size statements

From the course: Financial Accounting Foundations

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Common size statements

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- In fiscal 2018, Walmart's net income was $7.17 billion. In that same fiscal 2018, Target's net income was 2.937 billion. So is Walmart better than Target? At the end of fiscal 2018, Walmart had inventory of 44.269 billion, and Target had inventory of 9.497 billion. Which company is more efficiently managing its inventory? Well, without some consideration of the differing size of these two companies, we really can't intelligently answer these questions. Common-size financial statements are an easy and useful tool for transforming financial statement data to adjust for size differences. Simply stated, a common-size financial statement is a financial statement in which all the numbers have been divided by sales for the year. The result is a financial statement composed of percentages. Each number is stated as a percentage of sales for the year. Now, here's a common-size income statement for Walmart and for Target for fiscal 2018. Let's start at the bottom. In fiscal 2018, each $100 in…

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