Comparative Financial Statement Analysis Homework Help, Tutoring
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Comparative Financial Statement Analysis
Comparative Financial Statement analysis provides information to assess the direction
of change in the business. Financial statements are presented as on a particular
date for a particular period. The financial statement Balance Sheet indicates the
financial position as at the end of an accounting period and the financial statement
Income Statement shows the operating and non-operating results for a period. But
financial managers and top management are also interested in knowing whether the
business is moving in a favorable or an unfavorable direction. For this purpose,
figures of current year have to be compared with those of the previous years. In
analyzing this way, comparative financial statements are prepared.
Comparative Financial Statement Analysis is also called as Horizontal analysis.
The Comparative Financial Statement provides information about two or more years'
figures as well as any increase or decrease from the previous year's figure and
it's percentage of increase or decrease. This kind of analysis helps in identifying
the major improvements and weaknesses. For example, if net income of a particular
year has decreased from its previous year, despite an increase in sales during the
year, is a matter of serious concern. Comparative financial statement analysis in
such situations helps to find out where costs have increased which has resulted
in lower net income than the previous year.
Example:
Comparative Income Statement for the years ended 31st Dec 2008 & 31st Dec 2009
Comparative Balance Sheets as on 31st Dec 2008 & 31st Dec 2009
| 31st Dec 2008 | 31st Dec 2009 | Increase/ (Decrease) | % of increase / (decrease) | |
| Sales | $7,000 | $9,000 | $2,000 | 28.57% |
| Less: Cost of goods sold | $5,000 | $6,400 | $1,400 | 28.00% |
| Gross profit | $2,000 | $2,600 | $600 | 30.00% |
| Less: Operating expenses | ||||
| General & administrative expenses | $200 | $300 | $100 | 50.00% |
| Selling & distribution expenses | $400 | $500 | $100 | 25.00% |
| Other operating expenses | $100 | $150 | $50 | 50.00% |
| Operating profit | $1,300 | $1,650 | $350 | 26.92% |
| Less: Interest expenses | $300 | $400 | $100 | 33.33% |
| Net income before taxes | $1,000 | $1,250 | $250 | 25.00% |
| Less: Taxes at 30% | $300 | $375 | $75 | 25.00% |
| Net Income after taxes | $700 | $875 | $175 | 25.00% |
Comparative Balance Sheets as on 31st Dec 2008 & 31st Dec 2009
| 31st Dec 2008 | 31st Dec 2009 | Increase / (Decrease) | % of increase / (decrease) | |
| Current Assets: | ||||
| Cash | $500 | $600 | $100 | 20.00% |
| Accounts Receivables | $2,000 | $3,000 | $1,000 | 50.00% |
| Inventory | $1,500 | $2,500 | $1,000 | 66.67% |
| Total Current Assets | $4,000 | $6,100 | $2,100 | 52.50% |
| Fixed Assets: | ||||
| Buildings | $3,000 | $4,000 | $1,000 | 33.33% |
| Furnitures & office equipments | $1,000 | $1,500 | $500 | 50.00% |
| Total Fixed Assets | $4,000 | $5,500 | $1,500 | 37.50% |
| Total Assets | $8,000 | $11,600 | $3,600 | 45.00% |
| Liabilities: | ||||
| Current Liabilities: | ||||
| Accounts Payable | $1,000 | $1,200 | $200 | 20.00% |
| Notes Payable | $500 | $500 | $0 | 0.00% |
| Interest Payable | $100 | $120 | $20 | 20.00% |
| Total Current Liabilities | $1,600 | $1,820 | $220 | 13.75% |
| Shareholder's Equity: | ||||
| Common Stock | $5,000 | $7,500 | $2,500 | 50.00% |
| Retained earnings | $1,400 | $2,280 | $880 | 62.86% |
| Total Stockholder's equity | $6,400 | $9,780 | $3,380 | 52.81% |
| Total Liabilities & Stockholder's equity | $8,000 | $11,600 | $3,600 | 45.00% |
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