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:
