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417, 6 Common Size Statement, , #what do you mean by common si, . ) Size statement?, , » Common size statements are the st 2 Marks, ationship of different items of a financial, , Teentage of that common item., , 1, atements which indicate the rel, , ant with a common item b i, ratemen y expressing eacl, Litem as a pe, , example, a common size balance sheet shows, , Sone the, spility t0 the total liabilities. Simil; percentage of each asset to the total assets, and that of each, , arly, in the, f 4 common siz, shown as a percentage of the net revenue from operati En Og tel tee eee, ations,, What is ‘vertical analysis?, is of fi j 1 Mark, ; Analysis of financial statements, : ; in the form of common size statement or as component sente, called vertical analysis. S ponent percentage statement, , 90, State the importance of common size statem, ents,, : 2 Marks, , pany’s position with the related industry as a whole is, , 4]. Distinguish between vertical and horizontal analysis of financial data. 2 Marks, , + Horizontal analysis oa Anancial data shows changes in all items of financial statements in absolute and, entage terms Over a period of time for a firm or between two firms, , , , , , , , , , , , , , , , , But, in vertical analysis of financial data, all items of a financial statement are expressed as a percentage of some, common base such as net revenue from operations for statement of profit and loss and total assets for balance sheet., , eparation of common size statements:, The following procedure may be adopted for preparing the common size statements., List out absolute figures in rupees at two points of time, say year 1, and year 2 (column 2 and 3 of exhibit 4.2), , Choose a common base (as 100). For example revenue from operations may be taken as base (100) in case of, statement of profit and loss and total assets or total liabilities (100) in case of Balance sheet., , 3. For all items of Col. 2 and 3 work out the percentage of that total. Column 4 and 5 shows these percentage as, shown in Exhibit 4.2., , .7 Trend Analysis, , Comparison of past data over a period of time wi, (usually 1“ year) is taken as 100, and on that basis,, , calculated., , Common Size Statement (Exhibit 4.2), , , , , , Year two Percentage of year 1 Percentage of year 2, , 4 5, , , , , , , , , , , , ith a base year is known as trend analysis. Each item in base year, trend percentages for the corresponding items in the other years, , “Present year value , 199,, , tend =, percentage Base year V alue