Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Common-sized Statements

Financial Accounting

14. Financial Statement Analysis

Common-sized Statements

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Multiple Choice

Which one of the following is a way in which financial managers use a common-size balance sheet?

To calculate the net present value of future cash flows

To determine the historical cost of fixed assets

To forecast future sales revenue

To compare the relative proportions of assets, liabilities, and equity across different companies regardless of their size

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Verified step by step guidance

Understand the concept of a common-size balance sheet: A common-size balance sheet expresses each item as a percentage of total assets, allowing for easy comparison of financial structures across companies of different sizes.

Recognize the purpose of using a common-size balance sheet: Financial managers use it to analyze the relative proportions of assets, liabilities, and equity, rather than focusing on absolute dollar amounts.

Identify the key advantage: By converting balance sheet items into percentages, financial managers can compare companies regardless of their size or scale, making it easier to assess financial health and structure.

Clarify why other options are incorrect: Calculating net present value, determining historical cost, or forecasting sales revenue are not directly related to the use of a common-size balance sheet. These tasks involve other financial tools and methods.

Conclude the correct application: The common-size balance sheet is specifically used to compare the relative proportions of financial components (assets, liabilities, and equity) across different companies, aiding in benchmarking and financial analysis.