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CS Executive · Corporate Accounting and Financial Management · Financial Statement Analysis

Which statement about trend analysis and common-size statements is correct?

Trend analysis is a horizontal analysis in which items of several years are expressed as percentages of a base-year figure taken as 100. Common-size analysis is vertical, using a same-year total such as sales or total assets as the base. The other statements reverse or misstate these techniques.

  1. ATrend analysis is a vertical analysis within one year, whereas common-size analysis compares items across years
  2. BCommon-size statements express items against a fixed base year of 100
  3. CTrend analysis calculates percentage changes of items over several years against a base year, which is a horizontal analysisCorrect
  4. DBoth techniques use total assets as the base for the income statement

Explanation

Trend analysis is horizontal: items of several years are expressed as percentages of the base-year figure taken as 100. Common-size analysis is vertical, using a total such as sales or total assets as the base within the same year. The first two options reverse these ideas.

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