One reason that a common-size statement is a useful tool in financial performance evaluation is that it enables the user to
A)make better comparisons of two companies of different sizes in the same industry.
B)determine which companies in a single industry are of the same size.
C)judge the relative potential of two companies of similar size in different industries.
D)determine which companies in a single industry are of the same value.

Question

Quizplus · Accepted Answer

A common-size statement expresses all financial statement items as a percentage of a common base, such as total assets or total revenue. This makes it easier to compare companies of different sizes in the same industry because it focuses on relative proportions rather than absolute values. This allows for a more accurate evaluation of financial performance and trends.

One Reason That a Common-Size Statement Is a Useful Tool