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?

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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.

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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.

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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.

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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.

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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

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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

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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?

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