The comparative financial statements are statements of the financial position at different periods,
of time. The elements of financial position are shown in a comparative form so as to give an idea
of financial position at two or more periods.
The following are the two types of comparative statements.
1.Comparative Balance Sheet : The analysis is the study of the trend of the same items, groups of
items and computed items in two or more balance sheets of the same business enterprise on different dates. The changes in periodic balance sheet items reflect the conduct of a business. It has four columns and the fourth column is used for giving percentages of increases or decreases.
Guidelines for interpretation : Interpreter is expected to study the following aspects
Current financial position and liquidity position
Longterm financial position
Profitability of the concern
For studying current financial position or shortterm financial position of a concern, should see
the working capital in both the years.
2.Comparative Income Statement: The income statement gives the results of the operations of a
business. It gives an idea of the progress of a business over a period of time. Like comparative
balance sheet it also has 4 columns and the fourth column is used to show increase or decrease in
figures, in absolute amounts and percentages respectively.
Guidelines for interpretation : Interpreter is expected to study the following aspects
The increase or decrease in sales should be compared with the increase or decrease in cost of
goods sold.
To analyze the study of operational profits.
The increase or decrease in net profit will give an idea about the overall profitability of the concern.
Should mention whether the overall profitability is good or not.
Trend Analysis:
The financial statements may be analyzed by computing trends of series of information. This
method determines the direction upwards or downwards and involves the computation of the percentage relationship that each statement item bears to the same item in base year.
Procedure for calculating trends.
One year is taken as a base year. Generally the first or the last is taken as base year.
The figures of base year are taken as 100.
Trend percentages are calculated in relation to base year. If a figure in one year is less than the
figure in base year the trend percentage will be less than 100 and it will be more than 100 if
figure is more than base year figure. Each year’s figure is divided by the base year’s figure.
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