CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

Which one of the following is generally the best indicator of growth or decline in a business?

A. Comparative income statements and/or balance sheets
B. Common-size statements
C. Trend statements
Correct Answer: C

Trend statements cast each statement item in percentage terms, compared with a base year that is at 100%. Because of their inherent comparison to a base year, trend statements are considered superior in showing growth and decline in a business.

User Contributed Comments 5

User Comment
kalps Trend statements use a base index and then compare it to that. COmmon size statements is more of a year on year comparison
MattNYC is this another name for Horizontal common-size analysis??
viannie Trend analysis = Horizontal common size (MattNYC, u r right ;)
Vertical analysis => is to look within 1 year's performance.
Horizontal analysis => to look across several year compared to a base year
gill15 So why is B wrong? It a common size statement(Horizontal)? Is it just not specific enough?
Kevdharr gill15, common size statements can be both vertical and horizontal. So yes, I think the answer simply wasn't specific enough as you said. If it would have said "horizontal common-size balance sheets", then there would have definitely been some confusion due to the fact that 2 of the answers would have technically been correct. But since it simply said "Common-size statements", and we know that trend statements always show growth and/or decline over time, you have to go with the latter. That definitely was a bit tricky, though.
You need to log in first to add your comment.