Which of the following is an advantage of a common-size income statement?
A) It is very useful to assess how effectively a firm collected its accounts receivable.
B) It reveals a great deal of information about the adequacy of a firm's net working capital.
C) It can tell the analyst a great deal about a firm's efficiency and profitability.
D) It reveals how effectively a firm has increased its assets.

Question

Quizplus · Accepted Answer

A common-size income statement expresses each line item as a percentage of the total revenue, which facilitates comparison across periods and firms. As a result, it can help analysts understand a firm's efficiency and profitability in relation to its revenues. However, it does not provide specific information about accounts receivable collection, net working capital, or asset growth effectiveness.

Which of the Following Is an Advantage of a Common-Size