Question

What is the primary purpose of a common size statement?

A. To compare companies of different sizes.
B. To evaluate the financial performance of a single company over time.
C. To analyze the relative proportions of different financial statement line items within a single company.
D. To determine the market capitalization of a company.

Answer 1

The primary purpose of a common size statement is to analyze and compare the financial proportions within a company, facilitating comparisons across different-sized entities.

Step-by-step explanation:

The primary purpose of a common size statement is to analyze the relative proportions of different financial statement line items within a single company. This allows for the comparison of financial information across companies of different sizes by expressing financial data as percentages of a common figure, such as total assets or sales, rather than absolute numbers. By standardizing financial statements in this way, it becomes easier for analysts and investors to compare a company's financial structure and operations regardless of the company's size or the scale of its financials.