A common-size statement is less effective than a horizontal analysis when comparing companies.

Question

Quizplus · Accepted Answer

A common-size statement is useful when comparing different components within the same company's financial statements, such as comparing different years' income statements. However, when comparing multiple companies, horizontal analysis (also known as trend analysis) is preferred as it allows for a direct comparison of changes in financial performance over time.

A Common-Size Statement Is Less Effective Than a Horizontal Analysis