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Vertical Analysis is also called common-size analysis and expresses each financial statement item as a percent of a base amount. This statement describes what?

It is used only for balance sheets.

It is used only for income statements.

Also called common-size analysis, it expresses each financial statement item as a percent of a base amount.

Vertical analysis, also called common-size analysis, expresses each financial statement item as a percentage of a base amount. This makes it easier to compare companies of different sizes or to track a company over time. For the balance sheet, the base is total assets, so every item is shown as a percentage of total assets. For the income statement, the base is net sales, so every item is shown as a percentage of net sales. The statement described is correct because it captures both the alternate name and the idea of using a base amount to express items as percentages. It isn’t limited to just balance sheets or just income statements, and it doesn’t rely on total liabilities as the universal base.

It expresses items as a percentage of total liabilities.