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CFA Level I Exam · Analyzing Statements of Cash Flows II

Common-Size Analysis of Cash Flow Statements

Updated 7 October 2026 · Fact-checked

Common-size analysis restates each cash flow line as a percentage of a base. The base is either net revenue or total cash inflows and outflows. You divide each item by the base, then compare percentages across years or companies. This removes size effects and shows where cash comes from and goes.

Understand Common-Size Analysis of Cash Flow Statements

A cash flow statement shows amounts in currency. A large company will always show bigger numbers than a small one. That makes direct comparison hard. Common-size analysis fixes this by turning every line into a percentage of one base figure.

There are two approaches in the CFA curriculum. The first is the revenue method: divide each line by net revenue. A CFO of 12% of revenue means the firm converts 12 cents of cash from operations for each 1 of sales. The second is the total cash flow method: divide each inflow by total cash inflows, and each outflow by total cash outflows. This shows the mix of cash sources and uses.

The revenue method links the cash flow statement to the income statement. It is useful for judging cash generation, capital intensity and trends. The total cash flow method is useful for seeing how the firm is funded and what it spends on. For example, you can see whether inflows come mainly from operations or from new debt.

The inflow and outflow percentages each sum to 100% in the total cash flow method. Under the revenue method they do not sum to anything fixed. Use the percentages to spot trends, such as falling CFO as a share of revenue, and to compare firms of different size, currency or reporting scale.

Key formulas to remember

Revenue-based common-size
Line item % = Cash flow line item ÷ Net revenue × 100
Apply to CFO, CFI, CFF and each component. Keep the sign of each item.
Total cash inflow-based common-size (inflows)
Inflow % = Cash inflow item ÷ Total cash inflows × 100
Total inflows = sum of all positive cash flow items. Inflow percentages sum to 100%.
Total cash outflow-based common-size (outflows)
Outflow % = Cash outflow item ÷ Total cash outflows × 100
Total outflows = sum of absolute values of all negative items. Outflow percentages sum to 100%.

How to solve Common-Size Analysis of Cash Flow Statements questions

Use this method for any question that asks you to build or read a common-size cash flow statement.

  1. 1Read which base the question asks for: net revenue, or total inflows and outflows.
  2. 2List every cash flow line with its sign. Inflows are positive, outflows negative.
  3. 3If the base is total cash flows, add all inflows into one total and all outflows (as absolute values) into another.
  4. 4Divide each line by the correct base. Inflows use the inflow total, outflows use the outflow total.
  5. 5Check that percentages make sense. Under the total cash flow method, inflows sum to 100% and outflows sum to 100%.
  6. 6Compare across periods or companies and state what changed, such as a shift from operating cash to debt funding.
  7. 7Match your conclusion to the options and eliminate any that misstate the base or the direction.

Quickest way: Single-division shortcut

When to use it: Use when the question gives one or two line items and asks for a single percentage.

  1. Identify the base in the stem: revenue, total inflows or total outflows.
  2. Compute only the base and the one line asked about.
  3. Do one division on the calculator: line ÷ base × 100.
  4. Check the result against the options. Numerical options go from smallest to largest, so rough estimation often removes two.

Common mistakes in Common-Size Analysis of Cash Flow Statements

  • Using revenue as the base when the question asks for total cash inflows

    Revenue is the familiar base from income statement common-size work.

    Fix: Underline the base in the stem before calculating.

  • Dividing outflows by total inflows

    Students treat all cash flows as one pool.

    Fix: In the total cash flow method, inflows use total inflows and outflows use total outflows.

  • Including outflows in total inflows, or netting items

    Summing every line with signs gives the net change in cash, not total inflows.

    Fix: Add only positive items for inflows. Add absolute values of negative items for outflows.

  • Ignoring sign and reporting an outflow as a positive share of inflows

    Percentages feel like positive numbers.

    Fix: Keep the sign under the revenue method. Under the total method, label items clearly as inflow or outflow.

  • Concluding a firm is stronger because a percentage rose

    A higher percentage under the total method only shows mix, not performance.

    Fix: Ask what the base did. Check whether the item grew or other items shrank.

Worked examples

Example 1

A company reports net revenue of USD 800 million, CFO of USD 120 million, CFI of USD (90) million and CFF of USD (20) million. Using the revenue method, what is CFO as a percentage of revenue, and which option is correct? A) 10.0% B) 15.0% C) 22.5%

Show the solution
  1. The base is net revenue of USD 800 million.
  2. CFO % = 120 ÷ 800 = 0.15.
  3. Convert to a percentage: 15.0%.
  4. Options A and C do not come from dividing CFO by net revenue, so eliminate them.

Answer: B) 15.0%

Example 2

A firm has these cash flows (EUR million): CFO inflow 400, new borrowing inflow 100, share issue inflow 100, capex outflow 250, debt repayment outflow 150, dividends outflow 100. Using the total cash flow method, what percentage of total outflows is capex? A) 41.7% B) 50% C) 62.5%

Show the solution
  1. Total inflows = 400 + 100 + 100 = 600 (not needed for this question).
  2. Total outflows = 250 + 150 + 100 = 500.
  3. Capex % of outflows = 250 ÷ 500 = 0.50.
  4. So capex is 50% of total outflows.
  5. Option A, 41.7%, is the trap of using total inflows as the base: 250 ÷ 600 = 41.7%.
  6. Option C, 62.5%, is the trap of dividing by CFO of 400: 250 ÷ 400 = 62.5%.
  7. Outflows are the correct base for an outflow item.

Answer: B) 50%

Exam tips

  • Read the base first. Questions often differ only in the base used.
  • Remember that under the total cash flow method inflow percentages sum to 100% and outflow percentages sum to 100%.
  • Expect interpretation questions: what a rising or falling share says about funding or cash generation.
  • Use rough mental division to remove two options before using the calculator.
  • Do not assume a higher CFO percentage of inflows means better performance; check the other inflows.

Practice questions from Analyzing Statements of Cash Flows II

Common-Size Analysis of Cash Flow Statements in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Common-Size Analysis of Cash Flow Statements: frequently asked questions

What is a common-size cash flow statement?

It restates each cash flow line as a percentage of a base. The base is net revenue, or total cash inflows and outflows. It lets you compare trends and companies of different size.

What is the difference between the revenue method and the total cash flow method?

The revenue method divides every line by net revenue and shows cash relative to sales. The total cash flow method divides inflows by total inflows and outflows by total outflows, so it shows the mix of sources and uses of cash.

Do the percentages always add to 100%?

Only under the total cash flow method, and separately for inflows and outflows. Under the revenue method there is no fixed total.

Can I use a calculator for this on the exam?

Yes. The TI BA II Plus or HP 12C can do this. On the BA II Plus, enter the line item, press ÷, enter the base, press = and then multiply by 100.