What is a Common-Size Statement?
The common-size statement is a financial document that is often utilized as a quick and easy reference for the finances of a corporation or business. Unlike balance sheets and other financial statements, the common-size statement does not reflect exact figures for each line item. Instead, the structure of the common size statement uses a common base figure, and assigns a percentage of that figure to each line item or category reflected on the document. A company may choose to utilize financial statements of this type to present a quick snapshot of how much of the company’s collected or generated revenue is going toward each operational function within the organization. The use of a common-size statement can make it possible to quickly identify areas that may be utilizing more of the operating capital than is practical at the time, and allow budgetary changes to be implemented to correct the situation. The common size statement can also be a helpful tool in comparing the financial struc
Which of the following is true of vertical analysis? • Each item on the balance sheet is expressed as a percentage of total liabilities. • Each item in the income statement is divided by net sales. • Each item in the income statement is expressed as a percentage of net income. • The amount of increase or decrease for each item in the income statement is divided by net sales.
