1. What is a common-size income statement? 2. What is the typical base used in vertical...

1. What is a common-size income statement?

2. What is the typical base used in vertical analysis of a balance sheet?

Expert Solution

1.)Common size financial statement analysis, which is also called a vertical analysis, is just one technique that financial managers use to analyze their financial statements. It is not another type of income statement but is a tool used to analyze the income statement.Common-size income statement analysis states every line item on the income statement as a percentage of sales. If you have more than one year of financial data, you can compare income statements to see your financial progress. This type of analysis will let you see how revenues and the spending on different types of expenses change from one year to the next.

% of base=(Amount of individual item/Amount of base item)×100

2.) The balance sheet provides essential information about your company's financial position. The income statement and cash flow statement provide you with accounting data over a defined period. But the balance sheet provides you with financial and accounting data at a specific moment. You conduct vertical analysis on a balance sheet to determine trends and identify potential problems.

When we conduct vertical analysis, we analyze each line on a financial statement as a percentage of another line. Vertical analysis is therefore a proportional analysis method. On an income statement you conduct vertical analysis by converting each line into a percentage of gross revenue. On a balance sheet we would typically state each line as a percentage of total assets

ekkarill92 answered 2 years ago

1) what base amount is used for vertical analysis of an income statement? 2) what do...

1) what base amount is used for vertical analysis of an income statement? 2) what do profitability ratios represent? 3) what do liquidity ratios represent? 4) what do solvency ratios represent? 5) which ratios are usually formatted as percentages?

What is the typical base used in vertical analysis of a balance sheet?

2.) What is vertical analysis, and what is its purpose? What is the purpose of common-size...

2.) What is vertical analysis, and what is its purpose? What is the purpose of common-size statements?

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Question 2: Create a common-size income statement and use the difference (2017-2016) to comment on the...

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Prepare a vertical analysis or same size income statement and balance sheet for Pepsi and Coca...

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