CFA Level I · CFA Level I Exam · Financial Analysis Techniques
Which of the following is the most likely benefit of using trend analysis with a common-size income statement over several periods?
Trend analysis on common-size statements most likely reveals changes in cost structure relative to revenue, such as a rising share of costs in sales. It does not remove accounting policy differences, and it shows proportions rather than absolute growth in each line item.
- AIt removes the effect of accounting policy differences.
- BIt reveals changes in cost structure relative to revenue.Correct
- CIt shows the absolute growth of every line item.
Explanation
Expressing items as a percentage of revenue over time shows whether costs are rising or falling relative to sales. It does not remove accounting policy differences, and because the figures are proportions, absolute growth is not directly shown.
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