Common-Size Analysis. Common-size analysis is a simple way to make financial statements of different firms comparable. What are possible shortcomings of comparing two different firms using common-size analysis?

Question

Want to see more full solutions like this?

Answer 1

Textbook Question

Chapter 4, Problem 1QE

Common-Size Analysis. Common-size analysis is a simple way to make financial statements of different firms comparable. What are possible shortcomings of comparing two different firms using common-size analysis?

Expert Solution & Answer

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

To evaluate a company’s performance, investors need a benchmark to which they can compare its financial ratios. What are some of the problems associated with these comparisons?

Which of the following statements regarding the current ratio is true? a.The current ratio is more useful than working capital in making comparisons across companies. b.The current ratio is not useful in making comparisons with industry averages. c.Working capital is more useful than the current ratio in making comparisons across companies. d.All of these statements are true.

Which is not a potential problem of utilizing ratio analysis? A. trends and industry averages are historical in nature. B. financial data may be distorted due to price-level changes. C. firms within an industry may not use similar accounting methods. D. all of the above E. answer not given

Answer 2

Textbook Question

Chapter 4, Problem 1QE

Common-Size Analysis. Common-size analysis is a simple way to make financial statements of different firms comparable. What are possible shortcomings of comparing two different firms using common-size analysis?

Expert Solution & Answer

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Textbook Question

Chapter 4, Problem 1QE

Common-Size Analysis. Common-size analysis is a simple way to make financial statements of different firms comparable. What are possible shortcomings of comparing two different firms using common-size analysis?

Expert Solution & Answer

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Textbook Question

Chapter 4, Problem 1QE

Common-Size Analysis. Common-size analysis is a simple way to make financial statements of different firms comparable. What are possible shortcomings of comparing two different firms using common-size analysis?

Expert Solution & Answer

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Answer 8

Expert Solution & Answer

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

To determine

Discuss the shortcomings in comparison of two different firms using common-size analysis.

Answer 12

Explanation of Solution

Common-size analysis computes the items of income statement as a percentage of sales and amount of balance sheet as percentage of total assets. The shortcoming of this analysis is that different firms have different policies and methods of production. The categorization of expenses is done on the basis of business activity of the business activities. Thus, it becomes difficult to compare two different firms.

Answer 13

Ch. 4 - Common-Size Analysis. Common-size analysis is a...Ch. 4 - Earnings per Share. Firm A reports an increase in...Ch. 4 - Prob. 3QE Ch. 4 - Profit Margin for ROA versus ROCE. Describe the...Ch. 4 - Concept and Measurement of Financial Leverage....Ch. 4 - Advantages of Financial Leverage. A company...Ch. 4 - Prob. 7QE Ch. 4 - Nucor, a steel manufacturer, reported net income...Ch. 4 - Phillips-Van Heusen, an apparel manufacturer,...Ch. 4 - TJX, Inc., an apparel retailer, reported net...

Common-Size Analysis. Common-size analysis is a simple way to make financial statements of different firms comparable. What are possible shortcomings of comparing two different firms using common-size analysis?

Videos

Explanation of Solution

Want to see more full solutions like this?

Chapter 4 Solutions