What are common-size financial statements of a company?

Statements that express each account on the balance sheet as a percentage of total assets and each account on the income statement as a percentage of net sales.

The correct answer is option 4- Statements that express each account on the balance sheet as a percentage of total assets and each account on the income statement as a percentage of net sales.

Common Size Statements are the statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item. The percentage thus calculated can be easily compared with the results of corresponding percentages of the previous year or of some other firms, as the numbers are brought to common base. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. Thus, common size statements are useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for the same year or for several years. This analysis is also known as ‘Vertical analysis’.