Question

Common Size Statement is also known as ________ analysis.

Hint:

Mnemonic: \textbf{V}ertical analysis looks at a \textbf{V}ery specific year (one column). Horizontal looks across the Horizon (multiple years).

Answer 1

Step 1: Understanding the Concept:
Financial statement analysis involves various tools. Common size statements express each item in a financial statement as a percentage of a base amount (e.g., total assets for a balance sheet, or net sales for an income statement).

Step 2: Detailed Explanation:
Because a common size statement looks at the relationship of each item to the total \textit{within the same financial period} (reading down a single column), it is referred to as Vertical Analysis.
In contrast, Comparative Statements look at financial data over multiple periods across time (reading across rows), which is known as Horizontal Analysis.

Step 3: Final Answer:
Common Size Statement is also known as Vertical analysis.