1.Are the following statements about common-size financial statements true or false?
Statement #1 – Expressing financial information in a common-size format enables the analyst to make better comparisons between two firms of similar size that operate in different industries.
Statement #2 – Common-size financial statements can be used to highlight the structural changes in the firm’s operating results and financial condition that have occurred over time.

A)  False                                   False

B)  False                                   True

C)  True                                    True

D)  True                                     False

2.Which of the following statements best describes vertical common-size analysis and horizontal common-size analysis?
Statement #1 – Each line item is expressed as a percentage of its base-year amount.
Statement #2 – Each line item of the income statement is expressed as a percentage of revenue and each line item of the balance sheet is expressed as a percentage of ending total assets.
Statement #3 – Each line item is expressed as a percentage of the prior year’s amount.

A)  Statement #1                       Statement #2

B)  Statement #2                       Statement #3

C)  Statement #2                       Statement #1

D)  Statement #3                        Statement #2

答案和详解如下：

1.Are the following statements about common-size financial statements true or false?
Statement #1 – Expressing financial information in a common-size format enables the analyst to make better comparisons between two firms of similar size that operate in different industries.
Statement #2 – Common-size financial statements can be used to highlight the structural changes in the firm’s operating results and financial condition that have occurred over time.

Statement #1

Statement #2

A)  False                                   False

B)  False                                   True

C)  True                                    True

D)  True                                     False

The correct answer was B)

Vertical common-size statements enable the analyst to make better comparisons of two firms of different sizes that operate in the same industry. Horizontal common-size financial statements express each line as a percentage of the base year figure; thus, horizontal common-size statements can be used to identify structural changes in a firm’s operating results and financial condition over time.

2.Which of the following statements best describes vertical common-size analysis and horizontal common-size analysis?
Statement #1 – Each line item is expressed as a percentage of its base-year amount.
Statement #2 – Each line item of the income statement is expressed as a percentage of revenue and each line item of the balance sheet is expressed as a percentage of ending total assets.
Statement #3 – Each line item is expressed as a percentage of the prior year’s amount.

Vertical analysis

Horizontal analysis

A)  Statement #1                       Statement #2

B)  Statement #2                       Statement #3

C)  Statement #2                       Statement #1

D)  Statement #3                        Statement #2

The correct answer was C)

Horizontal common-size analysis involves expressing each line item as a percentage of the base-year figure. Vertical common-size analysis involves expressing each line item of the income statement as a percentage of revenue and each line item of the balance sheet as a percentage of ending total assets.

AC