Question

State two objectives of common size statement.

Hint:

Common size = relative analysis tool; removes size differences.

Answer 1

Step 1: Meaning. In common size statement, all items are expressed as a percentage of a common base (like sales or total assets).
Step 2: Objectives. - Helps to compare two firms of different sizes. - Shows proportion of each item in relation to sales or assets, revealing structural strength.
Step 3: Example. If sales = 100 and expenses = 40, then expense ratio = 40%.
Final Answer: \[ \boxed{\text{1. Easy comparison \quad 2. Study proportion of items}} \] % Quciktip