A useful tool in financial statement analysis is the common-size financial statement.What does this tool enable the financial analyst to do?
A) Evaluate financial statements of companies within a given industry of approximately the same value.
B) Determine which companies in the same industry are at approximately the same stage of development.
C) Ascertain the relative potential of companies of similar size in different industries.
D) Compare the mix of assets,liabilities,capital,revenue,and expenses within a company over time or between companies within a given industry without respect to relative size.

Question

Quizplus · Accepted Answer

The common-size financial statement enables the financial analyst to compare the mix of assets, liabilities, capital, revenue, and expenses within a company over time or between companies within a given industry without respect to relative size. This is accomplished by expressing each line item as a percentage of a common base such as total assets or revenue. This allows for more meaningful comparisons and identification of trends over time or across companies.

A Useful Tool in Financial Statement Analysis Is the Common-Size