Question

Give any two objectives of preparing common size statements.

Answer 1

1. To present the change in various items in relation to revenue from operations, total assets or total liabilities: Comparative financial statements contain information on changes in revenue from activities, total assets, and total equity and liabilities. The preparation of standard size statements gets rid of this problem.
2. To provide for a common base for comparison: A common size statement provides a standardized comparison ground. Financial statements from various firms can be standardized regardless of item size. These tools enable comparing the profitability and financial situation of multiple enterprises over time.