From the course: Running a Profitable Business: Understanding Financial Ratios
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Target's common-size balance sheet
From the course: Running a Profitable Business: Understanding Financial Ratios
Target's common-size balance sheet
- We learned a lot of information from Target's common size income statement. Now let's look at the common size balance sheet. There are two ways to prepare a common size balance sheet. One, we just divide everything by sales. We've already seen that. This gives us a measure of efficiency. How efficiently are we using each asset to generate sales. Another way to construct a common size balance sheet is to divide everything by assets. Then the numbers we get are in terms of a percentage, 100%. Assets, what is the asset mix? What fraction of my total assets are cash? What fraction of my total assets are inventory and so forth? So let's do both techniques using the numbers of Target. First we'll divide all the numbers in the balance sheet by sales. This, again, tells us about efficiency. And immediately something pops out. Take a look at those accounts receivable numbers. It doesn't take a sophisticated analysis to…
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