Common size analysis is of immense use for comparing enterprises which differ substantially in size as it provides an insight into the structure of financial statements. Common Size Statements are also known as _____.
Answer & explanation
Correct answer: option 3
Correct answer: Option (3) → Component Percentage Statement
Concept: In a Common Size Statement each item is expressed as a percentage of a common base (net sales/revenue, or total assets), which is why it is also called a Component Percentage Statement – per Analysis of Financial Statements.
Because every figure is shown as a component percentage of a common total, common size statements are known as Component Percentage Statements and allow comparison of firms differing in size. They are a form of vertical analysis; “Horizontal Analysis” refers instead to comparative statements/trend analysis, so the other options are wrong.