True, the vertical analysis of financial statements is accomplished by preparing common-size statements.
Each line item in the income statement or balance sheet is expressed as a proportion of the total assets using vertical analysis. To create common-size statements, these percentages are computed. To determine how each line item fits into the overall picture of an income statement, balance sheet, or cash flow statement, we can utilize vertical analysis.
A type of examination and interpretation of the financial statement is the common size statement. Another name for it is vertical analysis. With this approach, each line item in the financial statements is analyzed in relation to the base amount for that specific accounting period.
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