Comparative financial statement

This is main tool of financial analysis. This type of analysis is useful when the accounting data of two periods is given. Generally two statements are prepared
i) Comparative balance sheet
ii) Comparative income statement
The figures of two periods are taken in their respective columns and increase or decrease after which percentage is taking into account previous year as base year. After showing the increase or decrease the interpretation in form of comment is also to be specified. However the various comparative statements are to be prepared as follow.

i) Comparative balance sheet:-

To analysis the financial statement as per the technique of comparative statement analysis the first one is the comparative balance sheet for preparation comparative balance sheet with following steps
Ist step
Take the given balance sheet of two period in years
2nd step
Make the difference of each item of balance sheet in the vertical or horizontal form determining the increase or decrease ( in absolute figure)
3rd Step
Make the % of increasing or decreasing ( Previous year as base year)
4th step

Interpretation (Comments)

a) Long term financial position
b) Working capital position
c) profitability position
d) Overall financial position

ii) Comparative Income Statements

The income statement shows results of operation of business .The comparative income statement indicate the variation with different item which are to be recorded in income statement .Over a particular period of time that is one year. It shows the amount of gross profit, operating profit and net profit. However a comparative income statement is to be prepared in following form.
Interpretation or Comments can be given
► On the increasing sale or cost of sale increasing or decreasing
► Operating expenses and incomes affecting the amount of profit or loss
► Overall profitability position