- Comparative Statements – Compare figures of different years to study trends and performance.
- Common Size Statements – Show data as percentages for easy comparison.
- Trend Analysis – Tracks the increase or decrease in items over the years using a base year.
- Ratio Analysis – Uses ratios to assess profitability, liquidity, and financial health.
- Cash & Funds Flow – Cash Flow shows cash movement; Funds Flow shows changes in financial position.
Definitions [5]
Definition: Financial Statement Analysis
- "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
Definition: Comparative Statement
- 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.
Definition: Comparative Balance Sheet
"Comparative Balance Sheet analysis is the study of the trend of the same items, group of items and computed items in two or more Balance Sheets of the same business enterprise on different dates." - Foulka
Definition: Comparative Statement
- 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.
Definition: Common-Size 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.
Formulae [3]
Percentage Change
\[\text{Percentage Change}\ =\ \frac{\text{Absolute Change}}{\text{Amount of Previous Year}}\times100\]
Absolute Change
Absolute Change = Current Year - Previous Year
Common Size Percentage Change
\[\text{Common Size Percentage Change }=\frac{\text{Amount of Item}}{\text{Total Fund Employed}}\times100\]
Key Points
Key Points: Financial Statement Analysis
- 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.
Key Points: Tools for Financial Analysis
Key Points: Comparative Financial Statement
- 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.
Format: Comparative Balance Sheet
COMPARATIVE BALANCE SHEET as at........
| Particulars (1) |
Note No. (2) |
Current Year (₹) | Previous Year (₹) | Absolute Change (Increase/Decrease) ₹ | Percentage Change (Increase/Decrease) % |
|---|---|---|---|---|---|
| A (3) |
B (4) |
C = A – B (5) |
(D = C/B × 100) (6) |
||
| I. EQUITY AND LIABILITIES | |||||
| 1. Shareholders’ Funds | |||||
| (a) Share Capital: | |||||
| (i) Equity Share Capital | … | … | … | … | |
| (ii) Preference Share Capital | … | … | … | … | |
| (b) Reserves and Surplus | … | … | … | … | |
| 2. Non-Current Liabilities | |||||
| (a) Long-term Borrowings | … | … | … | … | |
| (b) Long-term Provisions | … | … | … | … | |
| 3. Current Liabilities | |||||
| (a) Short-term Borrowings | … | … | … | … | |
| (b) Trade Payables | … | … | … | … | |
| (c) Other Current Liabilities | … | … | … | … | |
| (d) Short-term Provisions | … | … | … | … | |
| Total | … | … | … | … | |
| II. ASSETS | |||||
| 1. Non-Current Assets | |||||
| (a) Property, Plant and Equipment and | |||||
| Intangible Assets: | |||||
| (i) Property, Plant and Equipment | … | … | … | … | |
| (ii) Intangible Assets | … | … | … | … | |
| (b) Non-current Investments | … | … | … | … | |
| (c) Long-term Loans and Advances | … | … | … | … | |
| 2. Current Assets | |||||
| (a) Current Investments | … | … | … | … | |
| (b) Inventories | … | … | … | … | |
| (c) Trade Receivables | … | … | … | … | |
| (d) Cash and Bank Balances | … | … | … | … | |
| (e) Short-term Loans and Advances | … | … | … | … | |
| (f) Other Current Assets | … | … | … | … | |
| Total | … | … | … | … |
Format: Comparative Income Statement
COMPARATIVE STATEMENT OF PROFIT & LOSS
for the year ended 31st March....
| Particulars | Note No. | Figures for the Current Year | Figures for the Previous Year |
Absolute Change (Increase/Decrease) |
Percentage (Increase/Decrease) |
|---|---|---|---|---|---|
| 1 | 2 | 3 | 4 | 5 | |
| A | B | (A - B) = C | \[\frac{C}{B}\times100=D\] | ||
| ₹ | ₹ | ₹ | ₹ | ||
| I. Revenue from Operations | ... | ... | ... | ... | |
| II. Add: Other Incomes | ... | ... | ... | ... | |
| III. Total Revenue(I + II) | ... | ... | ... | ... | |
| IV. Less: Expenses | |||||
| - Cost of Materials Consumed | ... | ... | ... | ... | |
| - Purchase of Stock in Trade | ... | ... | ... | ... | |
| - Changes in Inventories of Finished Goods, Work-in-Progress and Stock in Trade | ... | ... | ... | ... | |
| - Employee Benefit Expenses | ... | ... | ... | ... | |
| - Finance Costs | ... | ... | ... | ... | |
| - Depreciation and Amortization Expense | ... | ... | ... | ... | |
| - Other Expenses | ... | ... | ... | ... | |
| Total Expenses | ... | ... | ... | ... | |
| V. Profit before Tax (III – IV) | ... | ... | ... | ... | |
| VI. Less: Tax | (...) | (...) | (...) | (...) | |
| VII. Profit after Tax (V – VI) | ... | ... | ... | ... |
Key Points: Comparative Financial Statement
- 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.
Key Points: Common-Size Statement
- 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.
Format: Common Size Balance Sheet
COMMON SIZE BALANCE SHEET
as at 31st March........
| Particulars | Note No. | Absolute Amounts | Percentage of Balance Sheet Total | ||
|---|---|---|---|---|---|
| Current Year | Previous Year | Current Year | Previous Year | ||
| ₹ | ₹ | % | % | ||
| I. EQUITY AND LIABILITIES: | |||||
| 1. Shareholders’ Funds | |||||
| (a) Share Capital | … | … | … | … | |
| (b) Reserves & Surplus | … | … | … | … | |
| 2. Non‑Current Liabilities | |||||
| (a) Long‑term Borrowings | … | … | … | … | |
| (b) Long‑term Provisions | … | … | … | … | |
| 3. Current Liabilities | |||||
| (a) Short‑term Borrowings | … | … | … | … | |
| (b) Trade Payables | … | … | … | … | |
| (c) Other Current Liabilities | … | … | … | … | |
| (d) Short‑term Provisions | … | … | … | … | |
| Total | … | … | 100 | 100 | |
| II. ASSETS: | |||||
| 1. Non-Current Assets | |||||
| (a) Property, Plant and Equipment and Intangible Assets | |||||
| (i) Property, Plant and Equipment | … | … | … | … | |
| (ii) Intangible Assets | … | … | … | … | |
| (b) Non-Current Investments | … | … | … | … | |
| (c) Long-term Loans and Advances | … | … | … | … | |
| 2. Current Assets | |||||
| (a) Current Investments | … | … | … | … | |
| (b) Inventories | … | … | … | … | |
| (c) Trade Receivables | … | … | … | … | |
| (d) Cash & Bank Balance | … | … | … | … | |
| (e) Short-term Loans and Advances | … | … | … | … | |
| (f) Other Current Assets | … | … | … | … | |
| Total | … | … | 100 | 100 | |
Format: Common Size Income Statement
COMMON SIZE STATEMENT OF PROFIT & LOSS
for the year ended 31st March........
| Particulars | Note No. | Absolute Amounts | Percentage of Revenue from Operations | ||
|---|---|---|---|---|---|
| Current Year | Previous Year | Current Year | Previous Year | ||
| ₹ |
₹ |
% |
% |
||
| I. Revenue from Operations | … | … | 100 | 100 | |
| II. Add: Other Incomes | … | … | … | … | |
| III. Total Revenue(I + II) | … | … | … | … | |
| IV. Less: Expenses | |||||
| Cost of Materials Consumed | … | … | … | … | |
| Purchase of Stock in Trade | … | … | … | … | |
| Changes in Inventories of Finished Goods, Work‑in‑Progress and Stock in Trade | … | … | … | … | |
| Employee Benefit Expenses | … | … | … | … | |
| Finance Costs | … | … | … | … | |
| Depreciation and Amortization Expenses | … | … | … | … | |
| Other Expenses | … | … | … | … | |
| Total Expenses | … | … | … | … | |
| V. Profit before Tax (III – IV) | … | … | … | … | |
| VI. Less: Tax | (… ) | (… ) | (… ) | (… ) | |
| VII. Profit after Tax (V – VI) | … | … | … | … | |
Important Questions [15]
- State the Significance of Analysis of Financial Statements to the ‘Lenders’.
- From the Following Information of a Club Show the Amounts of Match Expenses and Match Fund in the Financial Statement of the Club for the Year Ended on 31st March, 2009 and 31st March, 2010.
- Which of the following is a tool of Analysis of Financial Statements?
- Under which major heads and sub-heads will the following items be presented in the Balance Sheet of the company as per Schedule III, Part I of the Companies Act, 2013?
- Which of the following are not tools of Financial Analysis? (i) Cash Flow Statement (ii) Income Statement (iii) Balance Sheet (iv) Ratio Analysis
- It is technique which involves regrouping of data by application of arithmetical relationships. Identify the technique and state any two advantages of the technique identified.
- One of the Objectives of ‘Financial Statements Analysis’ is to Identify the Reasons for Change in the Financial Position of the Enterprise, State Two More Objectives of this Analysis.
- State Any One Limitation of Analysis of Financial Statement.
- Jw Ltd. Was a Company Manufacturing Geysers. as a Part of Its Long-term Goal for an Expansion, the Company Decided to Identify the Opportunity in Rural Areas Identify Any Two Values that the Company Wants to Communicate to the Society. Also, Present the Above Items Under the Correct Major Heads and Sub-heads as per Schedule Iii of the Companies Act, 2013
- Prepare Common Size Statement of Profit and Loss from the Following Information: Particulars Revenue from operations Cost of material consumed (% of revenue from operations) Operating expenses
- Following is the Income Statements, Prepare a Common Size Income Statements of Jayant Ltd. for the Year Ended 31-3-2011:
- What is Meant by a 'Common Size Statement'?
- From the following Balance Sheet of Rohit Ltd., prepare a Common Size Balance Sheet:
- From the following information, prepare a 'Common Size Statement of Profit and Loss' of K K Ltd. for the year ended 31.3.2021 and 31.3.2022:
- From the following information, prepare a 'Common Size Statement of Profit and Loss' of GG Ltd. for the year ended 31.3.2021 and 31.3.2022:
