One way to measure a company's financial performance is to benchmark against that of its competition. Which of the below is NOT a problem a company faces when benchmarking this way?
A) A problem arises when we use financial statements of different firms.
B) Firms are of different sizes, and thus comparisons may be troubling.
C) We cannot restate common-size financial statements for different firms.
D) All of these are problems.
Answer: C
Explanation: C) In order to aid in comparing against other companies, we restate financial statements into common-size financial statements, in which all line items are expressed as a percentage of a common base figure–for income statements, it is usually sales. This helps overcome problems with comparing numbers between a company and its benchmark.
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