Which of the following statements is true regarding vertical analysis?
A)Common-size financial statements can be used to compare businesses of different sizes.
B)Vertical analysis can only be used with balance sheet accounts.
C)Vertical analysis can only be used with income statement accounts.
D)Vertical analysis can only be used with retained earnings accounts.

Question

Quizplus · Accepted Answer

Common-size financial statements, which involve vertical analysis, express each item on a financial statement as a percentage of a base amount. This allows for comparisons to be made between businesses of different sizes. Vertical analysis can be used with both income statement and balance sheet accounts, not just one or the other. Retained earnings accounts do not have enough detail to use vertical analysis.

Which of the Following Statements Is True Regarding Vertical Analysis