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COMMON SIZE ANALYSIS
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Common-size ratios require the financial figures to be converted to a normalized form. The goal of this process is for all of the numbers in the set to have a standard comparative base. Common-size analysis allows managers and investors to compare companies with different size operations on an even playing field.
Using the financial statements specifically the statement of financial position as at 31st Dec 2021, we can do a common size analysis on the assets. Having a base of the total assets of the company, we can say that 24% of the total assets were contributed by the current assets. This means that total current assets contributed 24% of the total assets, (Amati 2019). In the same way, we can say that 66% of the total asset was contributed by non-current assets. This means that total non-current assets contributed 66% of the total asset.
We can conclude that Coca-Cola company is highly rely on their long-term assets. This shows that the company has a long investment horizon, and they are willing to reinvest in the business for longer term. Hence, they have high amount of non-current assets, (Monok, 2018). On the other hand, they also have high amount of total asset because of their large total asset base as well as their large capital expenditures. This shows that they have a high capital expenditure in order to expand their business.
We can use the analysis to compare companies within the same industry. Since Coca-Cola have high amount of total assets as well as high amount of non-current asset. Hence, it shows that they are focusing on long term investment and continuous expansion of their business through capital expenditure, (Soifer, 2016). This will make them to have higher level of equity relative to their total asset base which is a good indicator for a well funded and stable company.
The following is a common size analysis for Coca-Cola Balance and the Income statement
CONSOLIDATED STATEMENTS OF INCOME – USD ($) shares in Millions, $ in Millions
12 Months Ended
Dec. 31, 2020
Dec. 31, 2019
Common Size analysis
Revenues
$ 33,014
$ 37,266
100%
100%
Cost of Goods and Services Sold
13,433
14,619
41%
39%
GROSS PROFIT
19,581
22,647
59%
61%
Selling, General and Administrative Expense
9,731
12,103
29%
32%
Other Cost and Expense, Operating
853
458
3%
1%
OPERATING INCOME
8,997
10,086
27%
27%
Interest income
370
563
1%
2%
Interest expense
1,437
946
4%
3%
Equity income (loss) – net
978
1,049
3%
3%
Other income (loss) – net
841
34
3%
0%
INCOME BEFORE INCOME TAXES
9,749
10,786
30%
29%
Common Size analysis on Income Statement
CONSOLIDATED BALANCE SHEETS – USD ($) $ in Millions
Dec. 31, 2020
Dec. 31, 2019
Common Size analysis
CURRENT ASSETS
Cash and cash equivalents
$ 6,795
$ 6,480
8%
8%
Short-term investments
1,771
1,467
2%
2%
TOTAL CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
8,566
7,947
10%
9%
Marketable securities
2,348
3,228
3%
4%
Trade accounts receivable, less allowances of $526 and $524, respectively
3,144
3,971
4%
5%
Inventories
3,266
3,379
4%
4%
Prepaid expenses and other assets
1,916
1,886
2%
2%
TOTAL CURRENT ASSETS
19,240
20,411
0%
0%
EQUITY METHOD INVESTMENTS
19,273
19,025
22%
22%
OTHER INVESTMENTS
812
854
1%
1%
OTHER ASSETS
6,184
6,075
7%
7%
Deferred Income Tax Assets
2,460
2,412
3%
3%
PROPERTY, PLANT AND EQUIPMENT – net
10,777
10,838
12%
13%
TRADEMARKS WITH INDEFINITE LIVES
10,395
9,266
12%
11%
GOODWILL
17,506
16,764
20%
19%
OTHER INTANGIBLE ASSETS
649
736
1%
1%
TOTAL ASSETS
87,296
86,381
100%
100%
CURRENT LIABILITIES
Accounts payable and accrued expenses
11,145
11,312
17%
17%
Notes and Loans Payable, Current
2,183
10,994
3%
17%
Current maturities of long-term debt
485
4,253
1%
7%
Accrued income taxes
788
414
1%
1%
TOTAL CURRENT LIABILITIES
14,601
26,973
LONG-TERM DEBT
40,125
27,516
61%
42%
OTHER LIABILITIES
9,453
8,510
14%
13%
Deferred Income Tax Liabilities
1,833
2,284
3%
3%
66,012
65,283
100%
100%
Common Size Analysis Balance Sheet
References
Amati, J. (2019). Strategic performance analisys trough Financial Statement and Stock Market Data. The Coca-Cola case.
Monok, B., Montolalu, J., & Taroreh, H. S. (2018). Analisis Common Size Statement Pada PT. Asuransi Jiwasraya (Persero) Cabang Manado Kota. Jurnal Administrasi Bisnis (Jab), 6(003).
Soifer, I., Robert, L., & Amir, A. (2016). Single-cell analysis of growth in budding yeast and bacteria reveals a common size regulation strategy. Current Biology, 26(3), 356-361.
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