Comparative Financial Statement Analysis

As the name suggests, Comparative Financial Statement Analysis are statements of the financial position
of a business so designed as to provide time perspective to the consideration of various elements of
financial position embodied in such statements.

Example:

From the following Profit and Loss A/C and Balance sheet of Ramco Ltd for the year ended 2005 and
2006, you are required to prepare a Comparative income statement and a comparative Balance Sheet.

Profit & Loss A/C

Dr Cr

Particulars 2005 2006 Particulars 2005 2006

(Rs) (Rs) (Rs) (Rs)
To Cost of Goods Sold 6000 7500
To Operating 200 200
Expenses By Net Sales 8,000 10,000
To Administrative 300 400
Expenses
To Net Profit 1500 1900
8,000 10,000 8,000 10,000

Balance Sheet as on 31st December

Liabilities 2005 2006 Assets 2005 2006

(Rs) (Rs) (Rs) (Rs)
Bills Payable 500 750 Cash 1000 1400
Sundry Creditors 1500 2000 Debtors 2000 3000
Tax Payable 1000 1500 Stock 2000 3000
Debentures 1000 1500 Land 1000 1000
Preference Capital 3000 3000 Buildings 3000 2700
Equity Capital 4000 4000 Plant 3000 2700
Reserves 2000 2450 Furniture 1000 1400
13,000 15,200 13,000 15,200
 RAMCO Ltd

Comparative Income Statement

for the years ended 31st December 2005 and 2006

2005 2006 Increase(+) or Decrease(-)

Particulars Absolute Percentage
2006 2006
Net Sales 8000 10000 +2000 +25
Less: Cost of Goods Sold 6000 7500 +1500 +25
Gross Profit 2000 2500 +500 +25
Less: Operating Expenses
Administrative 200 200 - -
Selling 300 400 +100 +33.3
Operating Profit 1500 1900 +400 +26.7

Interpretation: The above statement shows that the sales have gone up in 2006, the rate of gross profit
remains at 25%. The Cost of Goods Sold and its percentage also remains at 25%. Administrative
expenses remains the same but the selling expenses have been increased. This is due to increase in sales.
Trend Analysis

The calculation of trend analysis involves the ascertainment of arithmetical relationship with each item of
several years to the same item of base year. Thus, one particular year out of many years is taken as base.

From the following data relating to the purchase of a firm, show Trend Analysis.

Year Purchases(Rs)
2000 1672
2001 1789
2002 1873
2003 1923
2004 2123
2005 1463

Solution

we take the year 2000 as base year

Trend Percentages

Year Decrease/ Increase

(in %)
2000 -
2001 +7
2002 +12
2003 +15
2004 +27
2005 -12.5