1.

Comparative Financial Statement: These are statements indicating the direction of movement with
respect to financial position and operating results. They are very useful to the analyst because they
contain not only the data appearing in a single statement but also information necessary for the study
of financial and operating trends over a period of years. Comparative statements may be made to show:
(a) Absolute data (money values or rupee amounts).
(b) Increases or decreases in absolute data in terms of money values. (c)
Increases or decreases in absolute data in terms of percentages. (d)
Comparisions expressed in ratios.
(e) Percentage of totals.
The comparative financial statements as the name itself suggests enable comparision of financial
information for two or more years placed side by side. From this it is possible to appraise, the performance, position
and efficiency of business. The importance of comparative financial statement is recognised by the Indian Companies
Act 1956. It makes obligatory for all companies to prepare the final accounts of companies by presenting current years
as well as previous year figures.
The more common types of comparative statements are (a) Comparative Balance Sheet (b) Comparative income
statement, (c) Comparative statement of working capital and (d) Comparative statement of Manufacturing
costs.
A comparative balance sheet is prepared to know change of Assets, liabilities and capital of the business on two
different dates. The changes may relate to an increase or decrease in any of the items. It contains columns for (a)
Absolute data for the previous year (b) For absolute data for the current year (c) Changes in the items of Balance
Sheet (d) Change in items of Balance Sheet expressed in percentages.
Similarly a comparative income statement is prepared to compare all items of profit and loss a/c and thus to know the
increase or decrease in the items. By looking into the changes in expenditure and revenues it is possible to know the
operating efficiency of the business.
2. Common-Size Financial Statement Analysis: They are comparative statements that give only the
percentages for financial data without giving the rupee value. They are also known as 100 percent
statements because each statement is reduced to the total of 100 and each individual item is stated as
a percentage of the total of 100. Each percentage shows the relation of the individual items to its
respective total. The common size financial statements are most valuable in making comparisons
between the firms in the same industry. The two common-size financial statements usually prepared
are : (a) Common-size income statement and (b) Common-size balance sheet.

Computation of Common-size statements

1. In case of common-size income-statement, total net sales are stated as 100 percent. In case of position
statement either total assets or total of liabilities and capital is taken as 100.
2. The quotient of each item is found out by dividing individual money amount by the total amount in the
statement. This is expressed in the form of percentage.
3. TREND ANALYSIS OR TREND RATIOS
Trend ratios can be defined as the index numbers of the movements of the various financial items on the financial statement for
a number of periods. It is a statistical device applied in the analysis of financial statements to reveal the trend of the items with
the passage of time. They provide a horizontal analysis of comparative statements and reflect the behaviour of various items with
passage of time. The trend ratios are the useful analytical device for management since by substitution of percentages for large
amounts, the brevity and readability is achieved. It can be graphically presented for a better understanding by the
management. They are very useful in predicting the behaviour of the various financial factors in future. Sometimes trends are
significantly affected by external causes over which the organisation has no control. Such factors are Government policies,
economic conditions, change in income and its distribution etc

Points to be considered in calculation of trend ratios:

(i) The accounting principles and practices followed should be constant throughout the period for which
analysis is made.
(ii) Trend ratios should be calculated only for items having logical relationship with one another. (iii) There
should be financial statement for a number of years.
(iv) Take one of the statements as the base with reference to which all other statements are to be studied
but the selected base statements should belong to a normal year.
(v) Every item in the base statement should be stated as 100.
(vi) Trend Ratios of each item in other statement is calculated with reference to same item in the base
statement by using the following formula.

Sources : Accounting for BCA