The correct answer is: Both A and B.
Common size analysis is a technique that expresses all financial statement items as a percentage of a base amount. This allows you to compare financial statements from different periods or for different companies on a more meaningful basis.
Percent change analysis is a technique that calculates the percentage change in a financial statement item from one period to another. This allows you to identify trends in financial performance.
Both common size analysis and percent change analysis are useful techniques for identifying financial statements trends.
Here is a more detailed explanation of each option:
- Common size analysis is a technique that expresses all financial statement items as a percentage of a base amount. This allows you to compare financial statements from different periods or for different companies on a more meaningful basis. For example, if you want to compare the profitability of two companies, you could express both companies’ net income as a percentage of sales. This would allow you to see which company is more profitable, regardless of their size.
- Percent change analysis is a technique that calculates the percentage change in a financial statement item from one period to another. This allows you to identify trends in financial performance. For example, if you want to see if a company’s sales are increasing or decreasing, you could calculate the percentage change in sales from one year to the next.
Both common size analysis and percent change analysis are useful techniques for identifying financial statements trends.