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Computerized Investing > Third Quarter 2012

Common Size Financial Statements

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by Wayne A. Thorp, CFA

Financial statement analysis applies analytical tools and techniques to financial statements to determine the operating and financial success of a firm. The emphasis of the analysis depends on one’s viewpoint. A credit analyst extending a short-term, unsecured loan to a company might emphasize the firm’s cash flow and liquidity. An equity investor, on the other hand, may look closely at growth in sales, earnings and dividends. He would be interested in the variables that might have a significant impact on a firm’s financial structure, sales, earnings production and dividend policy.

In this installment of Spreadsheet Corner, we present a template that uses data from the balance sheet, income statement and cash flow statement to produce financial comparisons of interest to investors. We have attempted to make the line items industry-neutral so they are adaptable across companies in differing lines of business.

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