Chartered Financial Analyst Level 1

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Explanation:

Vertical common-size analysis involves expressing each balance sheet item as a percentage of total assets. The correct calculation for cash and cash equivalents is:

$\text{Cash and cash equivalents} / \text{Total assets} = 40 / (125 + 35) = 40 / 160 = 25\%$

Option A (20%) is incorrect because it mistakenly uses revenue as the denominator instead of total assets.
Option C (32%) is incorrect because it uses total current assets as the denominator instead of total assets.

The correct answer is B (25%), as it accurately reflects the proportion of cash and cash equivalents relative to total assets.

Explanation:

Vertical common-size analysis involves expressing each balance sheet item as a percentage of total assets. The correct calculation for cash and cash equivalents is:

$\text{Cash and cash equivalents} / \text{Total assets} = 40 / (125 + 35) = 40 / 160 = 25\%$

Option A (20%) is incorrect because it mistakenly uses revenue as the denominator instead of total assets.
Option C (32%) is incorrect because it uses total current assets as the denominator instead of total assets.

The correct answer is B (25%), as it accurately reflects the proportion of cash and cash equivalents relative to total assets.

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An analyst gathers the following information (in € millions) about a company: Cash and cash equivalents 40, Total current assets 125, Total non-current assets 35, Revenue 200. Using vertical common-size analysis, what percentage of total assets do cash and cash equivalents represent?

Exam-Like

20%.

31.3%

25%.

56.3%

32%.

12.5%