Creating and Using Common-Size Financial Statements
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(1) Describe a common-size financial statement. Explain how one is prepared.
(2) Explain what a common-size financial statement report communicates about a company.
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This solution discusses the preparation and use of common-size financial statements.
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(1) Describe a common-size financial statement. Explain how one is prepared.
A common-size financial statement is a financial statement that is prepared as a percentage on each line item. Instead of having revenue state $5,000 in year 1 and $4,000 in year 2, we would simply see a percentage, which shows the percentage of change between year 1 and year 2. Common-size financial statements are prepared by going through ...
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