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

Question

Quizplus · Accepted Answer

A common-size statement expresses all items as a percentage of a common base, such as sales. This allows for a better comparison of companies of different sizes in the same industry since it shows the proportional breakdown of each line item, making it easier to see which company has a stronger performance in certain areas.

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