Question

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the:________

Answer 1

When combining common-size and common-base year analysis, the effect of overall growth in assets can be eliminated by first forming the common size statements.

What is a common size statement?

An income statement with each line item expressed as a percentage of revenue or sales is referred to as a common size income statement. The usual size percentages assist in demonstrating the impact of each line item or component on the company's financial status.

Items are shown as a percentage of a common base amount, such as total sales revenue, in a financial statement of common size. This kind of financial statement makes it simple to compare one company to another or different time periods within the same company. You need to make some sort of size adjustment in order to compare those two businesses. Common-size financial statements are used for this.

Therefore, common size statement can eliminate the effect of overall growth in assets.

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