This tool of Analysis of financial statement indicates the relationship between different items of a financial statement with a common item by expressing each item as a percentage of that common item. Identify this analysis tool.

Common Size statement

The correct answer is option (2) : Common Size statement.

Common Size statement is the tool of Analysis of financial statement that indicates the relationship between different items of a financial statement with a common item by expressing each item as a percentage of that common item.

A Common Size Statement, also referred to as a component percentage statement, is a financial tool used to analyze significant shifts and patterns in a company's financial position and operational performance. In this statement, each element is presented as a percentage of the total, typically based on the company's revenue from its operations. For instance, a common size balance sheet displays the percentage of each asset relative to the total assets, and the percentage of each liability relative to the total liabilities. Similarly, in the common size income statement, expenses are presented as a percentage of the revenue generated from operations. When such a statement is created for multiple time periods, it reveals how these percentages have changed over time.