In the same manner that profit margins are calculated, the entire income statement is often converted to percentages or to a common size.  “Common sizing” refers to the act of restructuring a financial statement into individual percentages of a total.  For the income statement, the percentages are calculated by dividing each line by net sales.  A balance sheet may also be common-sized; in this case each account is measured against total assets.

Any individual expense or account may then be studied as a percentage.  It may be particularly useful to measure advertising, officer salaries, or occupancy costs as a percentage of sales.  This allows for more useful comparisons from year-to-year, especially if sales have grown over time.  These numbers may also be telling when compared to those of similar businesses or to competitors.

In fact, the most significant benefit of common sizing is that it allows for logical comparison between companies.  This format is essential when using industry averages, which are expressed as percentages.

Here is a sample set of benchmarks in a PDF from the Risk Management Association.