Common-Size the Cash Flow Statement

We routinely common-size the income statement and balance sheet, showing components as percentages of revenue or assets, to give us insight into margin trends, liquidity, leverage, and so forth.  I also common-size the cash flow statement, using net income as the basis (100%).  This tells me which components are the most sensitive and volatile on a relative basis.  It also highlights inconsistencies with historical results that might be due to data entry errors (I make many!) or legitimate assumptions such as a large capital outlay.  You only have to set this up once in your template, and it’s all automatic from there.

Incidentally, I show my common-size percentages without decimal points (e.g. 3%).  Decimal points imply a degree of accuracy that is just not there in a forecast!

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