Multiple Choice
In a common-size income statement, each item is expressed as a percentage of total:
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14. Financial Statement Analysis
Common-sized Statements
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
In a common size income statement, which item is typically expressed as 100% and serves as the base for expressing all other items as a percentage?
A
Total Assets
B
Gross Profit
C
Operating Expenses
D
Net Sales (or Revenue)
Verified step by step guidance1
Understand the concept of a common size income statement: It is a financial statement where each line item is expressed as a percentage of a base figure, allowing for easy comparison across companies or periods.
Identify the base figure in a common size income statement: The base figure is typically Net Sales (or Revenue), which is expressed as 100%. This serves as the reference point for calculating percentages for all other items.
Recognize why Net Sales is used as the base: Net Sales represents the total revenue generated by a company and is the starting point for analyzing profitability and expenses. It provides a consistent benchmark for comparison.
Learn how other items are expressed as percentages: Each line item, such as Gross Profit, Operating Expenses, and Net Income, is divided by Net Sales and multiplied by 100 to determine its percentage relative to Net Sales.
Apply this understanding to interpret a common size income statement: By expressing all items as percentages of Net Sales, you can easily compare the financial performance of different companies or analyze trends over time.
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