Question

Which of the following is an advantage of a common-size income statement?

a.It can tell the analyst a great deal about a firm’s efficiency and profitability

b. It reveals how effectively a firm has increased its assets

c. It reveals a great deal of information about the adequacy of a firm’s net working capital

d. It is very useful to assess how effectively a firm collected its accounts receivable.

Answer 1

Common size statement is a statement which show the activity and profitability of the firm. The Activities and Profitability ratios can be caluculated. but all the following given by the Balance Sheet : -

b. It reveals how effectively a firm has increased its assets

c. It reveals a great deal of information about the adequacy of a firm’s net working capital

d. It is very useful to assess how effectively a firm collected its accounts receivable

Therefore, the correct answer is Option a