RMA Credit Risk Certification Practice Exam

In common sizing, which financial statement items are typically expressed as a percentage of total assets?

Marketable securities only Income statement items Cash flow items Balance sheet items

Correct Answer:

Balance sheet items

Explanation:

Common sizing standardizes financial data so each line item is shown as a percentage of a single base. For the balance sheet, that base is total assets, so every balance sheet item—assets, liabilities, and equity—is expressed as a percentage of total assets. This lets you compare the composition of resources and obligations across firms and over time regardless of size. In contrast, income statement items are typically expressed as a percentage of sales to show profitability structure, and cash flow items are analyzed in absolute terms or as metrics tied to revenue or assets rather than a uniform percentage of total assets. Therefore, the items typically expressed as a percentage of total assets are balance sheet items.

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