Question

Common Size Statements are also known as :

• A. Dynamic analysis
• B. Horizontal analysis
• C. Vertical analysis
• D. External analysis

Hint:

In a Common Size Income Statement, each item is expressed as a percentage of Net Sales or Revenue.

Answer 1

The Correct Option is C

Understanding Common Size Statements Common size statements transform financial data into percentages, making it easier to compare different periods or companies of different sizes.
Vertical Analysis Explanation: In this analysis, each item on a financial statement is expressed as a percentage of a base figure within the same statement.
For the income statement, the base is typically net sales. For the balance sheet, it’s total assets or total liabilities and equity.
Vertical analysis helps in assessing the relationship of different items within a single financial statement.

Why Other Options Are Incorrect: Horizontal Analysis: Involves comparing financial data across different periods to identify trends.
Dynamic Analysis: a type of data analysis that can be used to look at various types of data.
External Analysis: Focuses on evaluating factors outside the company, such as market conditions or competitor activities.