Final answer:
To calculate a common size percent, the component's absolute amount and the total amount in the reference base are needed. This standardized metric, expressed as a percentage, enables comparison across different entities or time periods.
Step-by-step explanation:
To calculate a common size percent, we need to know two essential pieces of information: the component's absolute amount and the total amount in the reference base that the component is part of. For instance, if we are talking about financial statements, it would be a specific line item (like total sales) and the total sales revenue, respectively. The common size percent is then calculated by dividing the component's absolute amount by the total amount and multiplying by 100 to get a percentage.
This allows for comparison between different companies or time periods by standardizing figures as percentages of a common base. For example, understanding what percentage of total sales is represented by the cost of goods sold (COGS) allows analysts to compare efficiency across different companies regardless of their overall size.