Common size analysis is a common procedure followed by many analysts. With the help of this...

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Common size analysis is a common procedure followed by many analysts. With the help of this method items of income statement are showed as a percentage of sales and figures of balance sheet are reflected as a percentage of total assets, this percentage view of the financial statements help the analysts to compare and analyze the business irrespective of the size. However as everything have certain limitations this method too is no stranger to it. Firstly difference firms and business houses may follow different accounting method and policies which may affect the preparation of common size statement. Secondly, various expenses may make a challenge of categorizing and it might be very difficult for one to categorize expenses in certain groups resulting in a dissimilar statement. Finally, companies and firms may have different year ends creating a time difference for comparison. Common size analysis is a common procedure followed by many analysts. With the help of this method items of income statement are showed as a percentage of sales and figures of balance sheet are reflected as a percentage of total assets, this percentage view of the financial statements help the analysts to compare and analyze the business irrespective of the size. However as everything have certain limitations this method too is no stranger to it. Firstly difference firms and business houses may follow different accounting method and policies which may affect the preparation of common size statement. Secondly, various expenses may make a challenge of categorizing and it might be very difficult for one to categorize expenses in certain groups resulting in a dissimilar statement. Finally, companies and firms may have different year ends creating a time difference for comparison.

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Common Size Analysis Common size analysis is a common method followed by numerous investigators With the assistance of this strategy things of income proclamation are appeared as a level of deals and ... View the full answer