Which of the following facts are related to the tools for analysis of financial statements:
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 and E only
Comparative statements belong to horizontal analysis; common size statements and ratios belong to vertical analysis.
A. Comparative statements and the financial ratios are the two tools employed in vertical analysis — False. The two tools of vertical analysis are common size statements and financial ratios; comparative statements are horizontal analysis.
B. Common size statements are the form of horizontal analysis — False. Common size statements are vertical analysis; it is comparative statements that are horizontal analysis.
C. Cash flow statements is a tool of financial statements analysis — True. It explains the changes in cash and cash equivalents during the year.
D. Ratio Analysis establishes the relationship between two financial Variables — True. A ratio relates two accounting figures to each other.
E. In a common size statements, each item is expressed as a percentage of some common base — True. The base is total assets or revenue from operations.
NCERT (2026-27 edition):
NCERT (2026-27 edition):
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