When using common-size financial statements to evaluate the operating results of two different companies, the gross margin of Company A is expressed as a percentage of:
A)Company B's gross margin.
B)the total gross margins of Companies A and B.
C)Company A's sales.
D)a common standard for both Company A and Company B.

Question

Quizplus · Accepted Answer

When using common-size financial statements, each line item is expressed as a percentage of a common base. In this case, Company A's gross margin would be expressed as a percentage of its own sales. Therefore, the answer is C: Company A's sales.

When Using Common-Size Financial Statements to Evaluate the Operating Results