Answer-first summary for fast verification
Answer: 40%
## Explanation Vertical common-size analysis expresses each balance sheet item as a percentage of total assets (or total liabilities and equity). For Year 2: - Total assets = $90 million - Total liabilities = $36 million To calculate the vertical common-size percentage for total liabilities: \[\text{Percentage} = \frac{\text{Total liabilities}}{\text{Total assets}} \times 100\] \[\text{Percentage} = \frac{36}{90} \times 100 = 40\%\] **Verification:** - Option A: 40% ✓ Correct - Option B: 67% (This would be 36/54 × 100, which is incorrect - that's liabilities/net assets) - Option C: 90% (This is simply the total assets value, not a percentage) **Key Concept:** In vertical common-size balance sheet analysis, all items are expressed as a percentage of total assets (or total liabilities and equity). This allows for comparison of the relative composition of the balance sheet across different companies or time periods.
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An analyst gathers the following information (in $ millions) about a company:
| Year 2 | Year 1 | |
|---|---|---|
| Total assets | 90 | 100 |
| Total liabilities | 36 | 40 |
| Total net assets | 54 | 60 |
Using vertical common-size balance sheet analysis, the company's total liabilities in Year 2 are closest to:
A
40%
B
67%
C
90%
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