Common Size Statements, also known as component percentage statements, are financial tools used to study the key changes and trends in a company's financial position. In these statements, each item is expressed as a percentage of a common aggregate figure. This allows for meaningful comparison between enterprises that differ substantially in size.

To prepare these statements, a specific procedure is followed. First, the absolute figures in rupees are listed for two points of time, such as Year 1 and Year 2. This establishes the raw data for comparison across different periods.

Next, a common base is selected and taken as 100. For the Statement of Profit and Loss, revenue from operations is usually taken as the base. For the Balance Sheet, total assets or total liabilities are considered the base.

Finally, the percentage of each item is calculated against this common total. For example, in a Common Size Balance Sheet, each asset is shown as a percentage of the total assets. Similarly, in the Common Size Statement of Profit and Loss, items of expenditure are shown as a percentage of the revenue from operations.

This analysis is useful for inter-firm comparison and is also known as Vertical Analysis. It provides insight into the structure of financial statements and helps compare a company's position with the related industry as a whole.