The common-size analysis is an important tool in financial analysis:

1. Describe a common-size financial statement. Explain how one is prepared.
2. Explain what a common-size financial statement report communicates about

Tip: explain what common-size income statement and balance sheet are. Explain that a common-size income statement provides you with a first understanding of the profitability of a company and the common-size balance sheet show the composition of the assets (liquidity) and the composition of the source of finance (equity and liabilities). You can provide numerical examples.