Revision: Financial Statement Analysis Accountancy HSC Commerce Class 12 Tamil Nadu Board of Secondary Education

• "Financial analysis consists in separating facts according to some definite plan, arranging them in groups according to certain circumstances and then presenting them in a convenient and easily read and understandable form.'' - Finney and Miller
• "Financial statement analysis is largely a study ofrelationships among the various financial factors in a business, as disclosed by a single set of statements and a study of the trends of these factors as shown in a series of statements." - John N. Myres

• "Financial Statements are the end product of financial accounting prepared by the accounts of a business enterprise that purport to reveal the financial position of the enterprise, the result of its recent activities and an analysis of what has been done with earnings." - Smith and Ashburne
• "The Financial Statements are a summary of accounts of a business enterprise, the Balance Sheet showing the assets, liabilities and capital as on a certain date and income statement showing the results, i.e., profit or loss for the period." - John N. Myer
• "The Statements which are prepared by the business to find out profitability, efficiency, solvency, growth of business to judge the financial strength and status are called as Financial Statements."

• 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.

Absolute Change = Current Year - Previous Year

• Meaning: Study of financial data to understand profit, performance, solvency, and efficiency.
• Tools: Comparative & Common-size Statements, Cash Flow, Ratio Analysis.
• Purpose/Use: Helps assess trends, make decisions on investment, credit, dividends, and compare firms.
• Users: Management, investors, creditors, banks, govt., employees, etc.
• Limitations: Based on past data, may be biased, ignores price changes & qualitative factors, affected by window dressing.

• Meaning & Parts: Show a business’s profit and financial position. Include Balance Sheet, P&L A/c, Cash Flow, Equity Statement, and Notes.
• Purpose: Provide a true and fair view to help users make informed decisions.
• Features: Based on past data, in monetary terms. A balance sheet is for a date; a P&L is for a period. Must be verifiable, relevant, understandable, and comparable.
• Nature: Influenced by facts, accounting concepts, conventions, standards, and judgments.
• Legal Requirement: As per the Companies Act, 2013, companies must prepare them yearly in the prescribed format (Schedule III).

                                                                         COMPARATIVE STATEMENT OF PROFIT & LOSS

                                                                                        for the year ended 31st March....

• 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.

• Trend Percentage Analysis helps compare financial data over several years.
• It shows the direction of change (increase or decrease) in financial items.
• Helps assess favourable or unfavourable trends in business performance.
• Useful for making future forecasts and decisions.
• Any year can be taken as the base year (value = 100); other years are shown as a percentage of it.