One reason that a common-size statement is a useful tool in financial analysis is that it enables the user to
a. judge the relative potential of two companies of similar size in different industries.
b. determine which companies in a single industry are of the same value.
c. determine which companies in a single industry are of the same size.
d. make a better comparison of two companies of different sizes in the same industry.
Answer: “d. make a better comparison of two companies of different sizes in the same industry.”
This is because in an industry there exists various companies with different capital and assets size, so to have a comparison between two different levels of companies, the common-size statement is very useful in comparison analysis through bring the two companies at same percentage level. The performance of the companies with the different investment level is easy with common-size statement.
One reason that a common-size statement is a useful tool in financial analysis is that it enables the user to