The Importance of Common Size Analysis

Oct 13, 2025 by thesweetdesigns.com 1 views

Introduction

The coal mining industry in Indonesia has made a significant contribution to state income, with great potential to encourage domestic economic growth. PT. Adaro Energy Tbk., the largest coal mining company in Indonesia, has expanded its operations to the energy sector due to low commodity prices. This article aims to analyze the performance of PT. Adaro Energy Tbk. through the common size lens for the 2018-2020 period.

The Importance of Common Size Analysis

Common size analysis becomes a powerful tool to measure a company's financial performance, especially in comparing performance between periods. By normalizing all items of financial statements to the percentage base of total assets or income, this analysis allows us to see how the allocation of company resources changes over time.

Common Size Analysis in the Income Statement

The common size analysis in the income statement provides a comprehensive picture of PT. Adaro Energy Tbk.'s financial performance for the 2018-2020 period.

2018

Item	Percentage
Sales	100%
HPP	45%
Gross Margin	55%
Operational Expenses	25%
Operating Profit	30%
Financial Expenses	5%
Profit before tax	25%
Income Tax	10%
Net profit	15%

2019

Item	Percentage
Sales	100%
HPP	43%
Gross Margin	57%
Operational Expenses	24%
Operating Profit	33%
Financial Expenses	4%
Profit before tax	29%
Income Tax	12%
Net profit	17%

2020

Item	Percentage
Sales	100%
HPP	41%
Gross Margin	59%
Operational Expenses	23%
Operating Profit	36%
Financial Expenses	3%
Profit before tax	33%
Income Tax	15%
Net profit	18%

From the table above, it can be seen that the gross margin of PT. Adaro Energy Tbk. experienced an increase from 2018 to 2020, showing better efficiency in managing production costs. Increased operating profit also shows the company's ability to control operational costs. However, it should be noted that the financial burden decreases, possibly caused by a decrease in the company's debt.

Common Size Analysis in the Statement of Financial Position

The common size analysis in the statement of financial position provides a comprehensive picture of PT. Adaro Energy Tbk.'s financial position for the 2018-2020 period.

2018

Item	Percentage
Current Assets	35%
Fixed Assets	65%
Total assets	100%
Current Liabilities	20%
Long-term Liabilities	15%
Total liabilities	35%
Equity	65%
Total liability and equity	100%

2019

Item	Percentage
Current Assets	33%
Fixed Assets	67%
Total assets	100%
Current Liabilities	18%
Long-term Liabilities	14%
Total liabilities	32%
Equity	68%
Total liability and equity	100%

2020

Item	Percentage
Current Assets	31%
Fixed Assets	69%
Total assets	100%
Current Liabilities	16%
Long-term Liabilities	13%
Total liabilities	29%
Equity	71%
Total liability and equity	100%

Common size analysis on the statement of financial position shows that PT. Adaro Energy Tbk. tends to allocate more assets to fixed assets, which indicates a long-term investment strategy in mining infrastructure and operations. Increasing the ratio of equity to total assets shows the company is increasingly dependent on their own capital, and tends to reduce debt. This can be seen as a sign of good financial health, but can also be associated with the company's conservative strategy in dealing with uncertain market conditions.

Conclusion

Common Size Analysis provides a more comprehensive picture of PT. Adaro Energy Tbk. during the 2018-2020 period. Despite facing the challenges of low commodity prices, the company shows solid performance by increasing gross margin, operating profit, and net profit. In addition, the company's more conservative financial strategy with an increase in the ratio of equity shows strong resilience and financial stability.

Recommendation

For the future, PT. Adaro Energy Tbk. needs to continue to maximize operational efficiency to maintain healthy profit margin. In addition, the diversification strategy to other energy sectors needs to be studied and developed to reduce dependence on the price of coal commodities.

Notes

Q1: What is common size analysis?

A1: Common size analysis is a financial analysis technique that involves expressing each item of a company's financial statement as a percentage of a base figure, usually total assets or sales. This allows for a comparison of the company's financial performance over time and with other companies.

Q2: Why is common size analysis important for PT. Adaro Energy Tbk.?

A2: Common size analysis is important for PT. Adaro Energy Tbk. because it provides a comprehensive picture of the company's financial performance and position over time. It helps to identify trends and patterns in the company's financial data, which can inform business decisions and improve financial management.

Q3: What are the key findings of the common size analysis of PT. Adaro Energy Tbk.?

A3: The key findings of the common size analysis of PT. Adaro Energy Tbk. include:

An increase in gross margin from 55% in 2018 to 59% in 2020, indicating better efficiency in managing production costs.
An increase in operating profit from 30% in 2018 to 36% in 2020, indicating the company's ability to control operational costs.
A decrease in financial burden, possibly caused by a decrease in the company's debt.
An increase in the ratio of equity to total assets, indicating the company's increasing dependence on its own capital and tendency to reduce debt.

Q4: What are the implications of the common size analysis for PT. Adaro Energy Tbk.?

A4: The implications of the common size analysis for PT. Adaro Energy Tbk. include:

The need to continue to maximize operational efficiency to maintain healthy profit margin.
The need to diversify the company's business to reduce dependence on the price of coal commodities.
The need to maintain a conservative financial strategy to ensure financial stability.

Q5: What are the limitations of the common size analysis?

A5: The limitations of the common size analysis include:

The analysis is based on available financial data, which may not be comprehensive or up-to-date.
The analysis does not take into account external factors that may affect the company's financial performance, such as changes in market conditions or government policies.
The analysis is a snapshot of the company's financial performance at a particular point in time and may not reflect the company's long-term financial health.

Q6: How can the common size analysis be used to inform business decisions?

A6: The common size analysis can be used to inform business decisions by:

Identifying areas of improvement in the company's financial performance.
Informing investment decisions, such as whether to invest in new projects or expand existing operations.
Informing financing decisions, such as whether to issue new debt or equity.
Informing strategic decisions, such as whether to diversify the company's business or enter new markets.

Q7: What are the next steps for PT. Adaro Energy Tbk. based on the common size analysis?

A7: The next steps for PT. Adaro Energy Tbk. based on the common size analysis include:

Continuing to maximize operational efficiency to maintain healthy profit margin.
Diversifying the company's business to reduce dependence on the price of coal commodities.
Maintaining a conservative financial strategy to ensure financial stability.
Conducting further analysis to identify areas of improvement and inform business decisions.