Question

One of the most important applications of ratio analysis is to compare a company's performance with that of other players in the industry or to compare its own performance over a period of time. Such analyses are referred to as a comparative analysis and trend analysis, respectively. A common size analysis requires the representation of financial statement data relative to a single financial statement item (or base account or value) What is the most commonly used base item for a common size balance sheet? OTotal assets Net sales Net income Earnings before interest and taxes Suppose you are conducting an analysis of the financial performance of Cold Goose Metal Works Inc. over the past three years. The company did not issue new shares during these three years, and has faced some operational difficulties. The company has thus pilot tested some new forecasting strategies for better operations management. You have collected the company's relevant financial data, made reasonable assumptions based on the information available, and calculated the following ratios.

Answer 1

The most commonly used base for a common size Balance sheet is

Total Assets

Net sales is used for Common sized Income Statement

Ability to meet debt obligations has worsened

An improvement in inventory turnover could likely be explained by the new sales forecasting strategies that led to better inventory management