When creating a common-size balance sheet, which of the following is used as the baseline for expressing each item on the balance sheet as a percentage?

Total liabilities

A Common Size Statement, also referred to as a component percentage statement, is a valuable financial tool for analyzing a company's financial condition and operational performance. In this type of statement, each item is presented as a percentage of the total or the revenue from operations that it contributes to. For instance, in a common size balance sheet, each asset is expressed as a percentage of the total assets, and each liability as a percentage of the total liabilities. Similarly, in a common size income statement, expenses are displayed as a percentage of the revenue generated from operations. When prepared over multiple periods, this statement reveals how these percentages change over time, providing insights into trends. Common size analysis is particularly useful when comparing businesses of different sizes, as it offers a glimpse into the composition of their financial statements. It facilitates inter-firm comparisons and allows for benchmarking a company against its industry peers, aiding in assessing its competitive position within the industry as a whole.