Which of the Following Is Not True About Common Size

question 78

Multiple Choice

Which of the following is not true about common size financial statements?

• A) Such statements are used to uncover data irregularities.
• B) Such statements are constructed by calculating the percentage each line item of the income statement, balance sheet, and cash flow statement is of annual sales.
• C) Such statements are useful for comparing businesses of different sizes in the same industry at different moments in time.
• D) Common size statements applied over a number of consecutive periods may be used to determine if the target firm is deferring necessary spending.
• E) Common size statements may be calculated for both quarterly and annual financial data.

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Definitions:

Prime Rate

The interest rate that commercial banks charge their most creditworthy customers, often used as a benchmark in lending.

Lender

An individual, financial institution, or other entity that provides funds to a borrower under the condition of future repayment with interest.

Bank Credit

The amount of credit available to a company or individual from a banking institution.

Short-Term Financing

Refers to the borrowing of funds for a period of less than one year to meet immediate financial needs.