True or false? component percentages allow a business to compare its percentages to comparable businesses?

Question

Accounting

Answer 1

True. Common size financial statements display all items as percentages of a common base figure. This type of financial statement allows for easy analysis between companies or between time periods of a company.

The values on the common size statement are expressed as percentages of a statement component such as revenue. While most firms don't report their statements in common size, it is beneficial to compute if you want to analyze two or more companies of differing size against each other.

Formatting financial statements in this way reduces the bias that can occur when analyzing companies of differing sizes. It also allows for the analysis of a company over various time periods, revealing, for example, what percentage of sales is cost of goods sold and how that value has changed over time.