Indicate whether each of the following statements about financial statement analysis is true or false.________ a) Vertical analysis of a company's balance sheet is useful in assessing its liquidity.________ b) Common size financial statements are a form of vertical analysis, but the common size statements for two or more years may usefully be compared.________ c) Vertical analysis of a balance sheet involves converting each component to a percentage of stockholders' equity.________ d) Small percentage changes resulting from vertical analysis may still represent large dollar amounts; therefore, changes in both absolute dollar amounts and percentages should be examined.________ e) A common size income statement is prepared by converting each component to a percentage of net income.
What will be an ideal response?
a) T b) T c) F d) T e) F
a) Vertical analysis of a company's balance sheet is useful in assessing its liquidity.
b) Common size financial statements are a form of vertical analysis, but the common size statements for two or more years may usefully be compared.
c) Vertical analysis of a balance sheet involves converting each component to a percentage of total assets.
d) Small percentage changes resulting from vertical analysis may still represent large dollar amounts; therefore, changes in both absolute dollar amounts and percentages should be examined.
e) A common size income statement is prepared by converting each component to a percentage of sales.
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