Using common-size balance sheet percentages to project individual assets, liabilities, or shareholders' equity has all of the following shortcomings except :
A) Individual assets, liabilities, and shareholders' equity are not independent of each other.
B) If a company experiences changing proportions for investments in securities among its assets, other asset categories may show decreasing percentages in some years even though their dollar amounts are increasing.
C) Individual assets, liabilities, and shareholders' equity are independent of each other.
D) The common-size percentages do not permit the analyst to easily change the assumptions about the future behavior of an individual asset or liability.

Question

Quizplus · Accepted Answer

The statement that individual assets, liabilities, and shareholders' equity are independent of each other is incorrect. In reality, they are interdependent and can affect each other. The other three statements are valid shortcomings of using common-size balance sheet percentages for projections.

Using Common-Size Balance Sheet Percentages to Project Individual Assets, Liabilities