What does a common-size balance sheet calculate for each account?

A common-size balance sheet is a financial tool that standardizes the financial statements of a company, allowing for easier comparison across companies and time periods. Specifically, it expresses each account as a percentage of total assets. This method enables analysts and stakeholders to assess the relative size and importance of various accounts, such as cash, inventory, and liabilities, in relation to the company’s overall financial position.

By calculating each account as a percent of total assets, users can quickly identify trends and make comparisons with other firms or industry benchmarks. This approach provides insights into the structure of the balance sheet and how effectively the company utilizes its resources. For example, if cash reserves increase as a percentage of total assets, it may indicate a more liquid position.

The other options relate to different financial metrics not relevant to the purpose of a common-size balance sheet. For instance, calculating net income as a percentage of total revenue pertains to income statement analysis, while cash flow related percentages connect to cash flow statements.