The common size statements are useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for several years. This analysis is also known as

Common size statements express each item in a financial statement as a percentage of a base figure. In the Income Statement, all items are shown as a percentage of Revenue/Sales. In the Balance Sheet, all items are shown as a percentage of Total Assets.

This technique converts absolute figures into percentages, making it possible to:

• Compare companies of different sizes (inter-firm comparison)
• Compare the same company across different years (intra-firm comparison)

Since this analysis examines the composition of financial statements by converting items to percentages within the same period, it is called Vertical Analysis.

To clarify the difference from other options:

Horizontal Analysis (or Trend Analysis) compares financial data across multiple periods by calculating percentage changes from a base year. It shows how figures have changed over time.

Ratio Analysis involves calculating specific relationships between financial statement items (like Current Ratio = Current Assets ÷ Current Liabilities).

Common size statements specifically refer to the vertical arrangement where each item is a percentage of a base figure within the same statement, hence it is Vertical Analysis.