Final answer:
A common-size balance sheet represents accounts receivable as a percentage of total assets. This allows for financial analysis and comparison that is not affected by the scale of the company, as every item is relativized to the common base of total assets.
Step-by-step explanation:
A common-size balance sheet is a financial statement that displays all items as percentages of a common base figure, such as total assets. In this case, accounts receivable would be expressed as a percentage of total assets. For instance, with the provided information where assets include reserves of 30, bonds of 50, and loans of 50, the total assets sum up to 130 (30+50+50). If accounts receivable were part of the assets, their value would be divided by the total assets and then multiplied by 100 to find the percentage.
When analyzing the balance sheet of a bank, it's important to understand that assets represent valuable resources owned by the bank, such as cash, loans, and bonds. On the other hand, liabilities, such as deposits made by customers and equity, reflect what the bank owes. For a healthy bank, the net worth or bank capital, which is the assets minus liabilities, should be positive.
A common-size balance sheet is particularly useful for analyzing trends over time within a company or comparing financial data with other companies, regardless of size, because it allows for a direct percentage comparison without the skewing effects of scale differences.
Final answer:
A common-size balance sheet represents accounts receivable as a percentage of total assets. This allows for financial analysis and comparison that is not affected by the scale of the company, as every item is relativized to the common base of total assets.
Step-by-step explanation:
A common-size balance sheet is a financial statement that displays all items as percentages of a common base figure, such as total assets. In this case, accounts receivable would be expressed as a percentage of total assets. For instance, with the provided information where assets include reserves of 30, bonds of 50, and loans of 50, the total assets sum up to 130 (30+50+50). If accounts receivable were part of the assets, their value would be divided by the total assets and then multiplied by 100 to find the percentage.
When analyzing the balance sheet of a bank, it's important to understand that assets represent valuable resources owned by the bank, such as cash, loans, and bonds. On the other hand, liabilities, such as deposits made by customers and equity, reflect what the bank owes. For a healthy bank, the net worth or bank capital, which is the assets minus liabilities, should be positive.
A common-size balance sheet is particularly useful for analyzing trends over time within a company or comparing financial data with other companies, regardless of size, because it allows for a direct percentage comparison without the skewing effects of scale differences.