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For this blog I will use data taken from the Polly Ester case study. The common size statement takes data from the income statement and the balance sheet and calculates movements from a starting (base) year. It does help to provide useful information that can be used when carrying out an analysis of the financial position of a company.
The common size statement (in this case indexing all financial data to a base year 2009) will be used to highlight those figures that show extreme movements, or simply those that are out of line with, say, activity.
|Trade and other receivables||100||126.3||172.6||226.8|
|Trade and other payables||100||136.6||197.5||272.1|
|Cost of sales||100||119.2||164.6||210.4|
|Profit before tax||100||102.8||90.2||–7.1|
|Retail and distribution costs||100||120.9||152.0||184.0|
|Retail space (sq mtr)||100||122.2||139.6||153.4|
Common size statement for Polly Ester Holdings plc
The common size statement above shows an increase in retail space over the period of 53.4%, while retail and distribution costs have increased by 84% and bank overdraft by a staggering 1,090.3%.
Inventories, trade receivables and payables have risen faster than the retail space or revenue income. In 2009/10 cost of sales has risen faster than revenue income and the gap has widened in the two subsequent. There is a decline in profit before tax over the period 2011/12 clearly caused by the above and a substantial increase in interest payable.