Common size balance sheets make it easier to compare firms ____________.
A)with different degree of leverage
B)of different sizes
C)in different industries
D)that use different inventory valuation methods (FIFO vs.LIFO)
E)none of the above

Question

Quizplus · Accepted Answer

Common size balance sheets express each line item as a percentage of total assets, making it easier to compare firms of different sizes. This allows for a more accurate comparison of financial ratios and trends. Choice A is incorrect because common size balance sheets do not adjust for leverage. Choice C is incorrect because companies in different industries may have different assets and liabilities, making it difficult to compare using common size balance sheets. Choice D is incorrect because common size balance sheets do not adjust for inventory valuation methods.

Common Size Balance Sheets Make It Easier to Compare Firms