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1. Common size statement is those statements which are expressed as a percentage of a base variable. Common size balance sheet statement is a statement in which all the variables are expressed as a percentage of Total assets. Common size income statement is a statement in which all the variables are expresses as a percentage of sales. Comparative analysis is made possible and more appropriate using this statement.

Common size income statement of two companies along with their numerical values:

Company A Amount in $millions Company B Amount in $millions Common size income statement of Company A Common size income statement of Company A

Sales $1,500 $200 100% 100%

COGS $800 $50 53.33% 25%

Gross profit $700 $150 46.67% 75%

Taxes $280 $60 18.67% 30%

Net income $420 $90 28% 45%

By making a direct comparison between company A and B in the above example, Company A looks more attractive because of higher sales and net income. In this case, one cannot draw appropriate conclusion about the performance of these companies, because the size of revenue, expenses, are entirely different. But the common size income statement provides for in-depth and appropriate information. The fact is that Company B is better than Company A, which cannot be understood without using common size statement. This analysis eliminates the misconception and provides for actual information about the performance and efficiency of the company.

By establishing a common size statement, the bias associated with the comparative analysis is being eliminated. This statement provides for more valuable information to the analyst in understanding about every variable and the changes in them over the period of time accurately.

2. Internal growth rate as the name suggests is ...

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...-conventional then it will result in multiple IRR. Payback method is in top four, which is easy to compute and simple to understand. The main disadvantage of this method is that it ignores time value of money, cash flow beyond the payback period is ignored which is essential for any decision making. Advantage of using PI is that it considers time value of money, all cash flow, appropriate cost of capital, disadvantage of PI is that it is difficult to compute and it is difficult to determine the appropriate discount rate.

The best method to use is NPV and EAA. The main advantage of EAA is that it eliminates the inequality in the life time and enables in comparing both mutually exclusive and unequal life projects. At the same time, time value of money is given importance and this provides for appropriate result without any misleading and confusion in decision making.