The principal reason for preparing common size statements is
A) to make meaningful comparisons between firms that are not the same size.
B) to make meaningful comparisons between different quarters within the fiscal year.
C) to eliminate the effects of inflation.
D) to make meaningful comparisons between firms in different industries.

Question

Quizplus · Accepted Answer

Common size statements normalize financial statements by expressing all items as a percentage of a common base, typically total assets or total revenue. This makes it easier to compare the financial performance of firms that are different sizes. By eliminating the influence of absolute values, common size statements provide a more accurate representation of the relative importance of each item. This allows for more meaningful comparisons between entities of different sizes.

The Principal Reason for Preparing Common Size Statements Is