Question

One of the most important applications of ratio analysis is to compare a company’s performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A common size analysis requires the representation of financial statement data in terms of a single financial statement item (or base account or value). What is the most commonly used base item for a common size income statement?

Answer 1

Answer:

The correct answer is letter "B": Total assets.

Explanation:

Total assets refer to the total of assets a business has and from where the institution can obtain a profit. Common assets are cash, accounts receivable, inventory, and intangible assets to mention a few. Assets can be recorded at market value according to the International Financial Reporting Standards (IFRS) but not following the Generally Accepted Accounting Principle (GAAP).

Total assets are recorded on the Company's Balance Sheet and are the default base item for Income Statements.