Which of the following best describes a common-size financial statement?

A common-size financial statement is designed to standardize financial statements by expressing each line item as a percentage of a base item, which allows for easy comparison across time periods or between different companies, regardless of their size. For example, in an income statement, each line item may be represented as a percentage of total revenue, thus enabling users to see the proportion of each expense relative to sales. This format helps stakeholders analyze the relative size and structure of financial items, making it easier to identify trends and make comparisons.

The other options describe various financial concepts but do not capture the essence of a common-size financial statement. A focus solely on cash transactions or only liabilities and equity would not reflect the comprehensive nature of a common-size analysis across all financial components. While providing comparisons through ratios is useful, it's not the same as expressing items as a percentage of a base, which is the defining feature of a common-size format.