Question

The common size statements are useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for several years. This analysis is also known as:

• A. Vertical analysis
• B. Ratio analysis
• C. Trend analysis
• D. Horizontal analysis

Hint:

Remember: Common size statements → Vertical analysis (percentage of a common base). Comparative statements → Horizontal analysis (year-to-year changes).

Answer 1

The Correct Option is A

Step 1: Understanding common size statements.
Common size statements present financial data in percentage form (e.g., each item of the balance sheet as a percentage of total assets, or each item of P&L as a percentage of sales).

Step 2: Purpose.
This technique helps in: - Comparing data of the same firm across years (intra-firm). - Comparing data across different firms (inter-firm).

Step 3: Identifying the analysis type.
When each item is expressed as a percentage of a common base, it is termed as Vertical Analysis.

Final Answer: \[ \boxed{\text{Vertical Analysis}} \]