Revision: Analysis of Financial Statements Accounts HSC Commerce (English Medium) 12th Standard Board Exam Maharashtra State Board

• Comparative Statements or Comparative Financial Statements mean a comparative study of individual items or components of financial statements, i.e., Balance Sheet and Statement of Profit & Loss of two or more years of the enterprise itself.
• Statement showing financial data for two or more than two years placed aside by side to facilitate comparisons are called Comparative Financial Statement.

• "Common-size Statements are accounting statements expressed in percentage of some base rather than rupees." - Kohler
• Common-size Statements are the Statements which show the relationship of different items of financial statements with some common item (base) by expressing each item as a percentage of that common base.

• Cash Flow Statement is a statement that shows inflows and outflows of cash and cash equivalents under Operating, Investing and Financing Activities of a company during a particular accounting period.
• Cash Flow Statement can be defined as a “Statement which summarises sources of cash inflows and uses for cash outflows during a particular period.” 

\[\text{Quick Ratio or Liquid Ratio}=\frac{\text{Quick Assets or Liquid Assets }}{\text{Current Liabilities}}\]

1. Quick or Liquid Assets:

Quick or Liquid Assets = Current Investments + Trade Receivables (i.e., Bills Receivable and Sundry Debtors less Provision for Doubtful Debts) + Cash and Bank Balances + Short-term Loans and Advances + Other Current Assets (Except Prepaid Expenses).

                                                   Or

Quick or Liquid Assets = Current Assets - Inventories - Prepaid Expenses and Advance tax. 

2. Current Liabilities:

Current Liabilities = Short-term Borrowings + Trade Payables (Sundry Creditors + Bills Payable) + Other Current Liabilities + Short-term Provisions

• Meaning: Comparative Statements present financial data of two or more years side‑by‑side to show changes in amount and percentage.
• Types: Intra‑firm comparison compares the same firm over different years, while Inter‑firm comparison compares different firms.
• Uses: They simplify financial data, show trends, identify strengths and weaknesses, help compare with industry performance, and assist in forecasting.
• Limitations: They are based on past data, affected by estimates and personal judgement, ignore qualitative factors, do not consider price level changes, and are unreliable if accounting policies differ.
• Formats: Information can be shown as absolute changes, percentage changes, ratios, averages, and through comparative Balance Sheet and Profit & Loss statements.

• Common-size statements show each financial item as a percentage of a common base.
• They are used in the Balance Sheet and Income Statement for better comparison.
• The main purpose is to compare data, analyse trends, and understand financial relationships.
• Each item is shown in actual figures and as a percentage of the base amount.
• They help in tracking changes, identifying trends, and assessing business efficiency.

• A Cash Flow Statement shows cash inflows and outflows during a specific accounting period.
• It covers cash from operating, investing, and financing activities.
• It helps explain the net change in cash between two balance sheet dates.
• The statement is useful for short-term planning, liquidity analysis, and decision-making.
• It is prepared as per Accounting Standard-3 (AS-3 Revised).
• It helps assess a company’s performance, liquidity, and solvency through activity-wise analysis.
• Limitations: It ignores non-cash items, reflects only past data, and does not measure profit.