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What is meant by "presentation of financial statement information in common-size amounts rather than dollar amounts?"...

What is meant by "presentation of financial statement information in common-size amounts rather than dollar amounts?" Why is this type of presentation sometimes more meaningful than use of actual dollar amounts?

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Expert Solution

The common-size financial statement reflects the entire items to be the percentages of a common base figure rather than dollar amounts; thus for presentation of financial statement information in common-size amounts each component on the financial statements will be converted into percentages.

Sometimes this sort of information is more useful than the actual dollar amounts because it is beneficial to analyze two or more firms of differing size against each other, and also enabling company analysis over numerous time periods. The common-size amounts help the management and investors to quickly make a comparison of different firms in an industry, or the same firm’s performance over time in a simplified form by decreasing the bias of dollar amounts. It heps in a better comparison of the company's financial health and enable the stakeholders to better analyze internal as well as external trends

ekkarill92 answered 1 year ago
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