Which of the following statements related to the tools for analysis of financial statements are correct?
A) Comparative statements and the financial ratios are the two tools employed in vertical analysis.
B) Common size statements are the form of horizontal analysis.
C) Cash flow statements is a tool of financial statements analysis.
D) Ratio analysis establishes the relationship between two financial variables.
E) In a common size statements, each item is expressed as a percentage of some common base.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → C, D & E only
Comparative statements are a form of horizontal analysis; common size statements and ratios are tools of vertical analysis.
(A) Comparative statements and the financial ratios are the two tools employed in vertical analysis. — False. The book names common size statements (not comparative statements) with ratios as the vertical-analysis tools; the paper changed that word.
(B) Common size statements are the form of horizontal analysis. — False. The book says comparative statements are the form of horizontal analysis; common size statements are vertical.
(C) Cash flow statements is a tool of financial statements analysis. — True. The book marks this statement true.
(D) Ratio analysis establishes the relationship between two financial variables. — True. A ratio relates two figures; the book’s version (“two financial statements”) is also marked true.
(E) In a common size statements, each item is expressed as a percentage of some common base. — True. The book marks this statement true.
NCERT (2026-27 edition):
NCERT (2026-27 edition):
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