ISMChapter04.docVIP

CHAPTER 4 PROFITABILITY ANALYSIS Solutions to Questions, Exercises, and Problems, and Teaching Notes to Cases Common-Size Analysis. Restating income statement line items as a percentage of sales and balance sheets as a percentage of total assets enables the analyst to compare different firms regardless of size. However, at least three possible limitations could impact the benefits of common-size analysis. First, firms often categorize or group expenses in different line items, which can make it difficult to force dissimilar financial statements into a standardized format. Second, fir