Which analysis technique involves expressing financial items as percentages of a common base?

The analysis technique that involves expressing financial items as percentages of a common base is commonly referred to as common sizing. This method is particularly useful for comparing financial statements across different companies or time periods by standardizing various line items. For instance, in a common size income statement, each line item is shown as a percentage of total revenue, which allows for easier comparison of profitability and expense structures across businesses or among different years for the same company.

Common sizing aids in financial analysis by helping analysts understand the relative size of various components of financial statements, regardless of the scale of the company’s operations. It's especially beneficial in the context of financial performance analysis, as it highlights changes and trends in financial metrics without being influenced by absolute dollar amounts.

In contrast, techniques like percent change focus on measuring the increase or decrease of a particular line item over time, but do not standardize those items as percentages of a common base. Trend analysis looks at patterns over time for specific financial metrics, and ratio analysis compares specific items to one another, often without converting them to a common base. Each of these techniques has its unique application, but common sizing stands out for its ability to simplify and facilitate direct comparisons across different entities or periods.