Distinguish between comparative statements and common-size statements.

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Accepted Answer

Both comparative and common-size statements are tools of financial statement analysis, but they differ in direction, method and purpose:

| Basis of distinction | Comparative Statement | Common-Size Statement |
|---|---|---|
| Meaning | Sets the figures of two or more periods side by side | Expresses each item as a percentage of a common base |
| Direction of analysis | Horizontal (across years) | Vertical (down the statement, within one year) |
| Basis of comparison | Each item is compared with its own figure of another year | Each item is compared with a common base (net sales / total assets) of the same year |
| Figures shown | Absolute figures plus absolute change and percentage change | Percentages only (of the common base) |
| What it reveals | The direction and size of change in each item over time | The internal composition/proportion of the statement |
| Comparison of different-sized firms | Not directly suitable (deals in absolute rupees) | Well suited, since size is removed and only proportions remain |
| Base | The previous year's figure (for the % change) | Revenue from operations (income statement) or total assets (balance sheet) = 100 | …

Q.Distinguish between comparative statements and common-size statements.

Concept understanding — Comparative Statements

Basis of distinction	Comparative Statement	Common-Size Statement
Meaning	Sets the figures of two or more periods side by side	Expresses each item as a percentage of a common base
Direction of analysis	Horizontal (across years)	Vertical (down the statement, within one year)
Basis of comparison	Each item is compared with its own figure of another year	Each item is compared with a common base (net sales / total assets) of the same year
Figures shown	Absolute figures plus absolute change and percentage change	Percentages only (of the common base)
What it reveals	The direction and size of change in each item over time	The internal composition/proportion of the statement
Comparison of different-sized firms	Not directly suitable (deals in absolute rupees)	Well suited, since size is removed and only proportions remain
Base	The previous year's figure (for the % change)	Revenue from operations (income statement) or total assets (balance sheet) = 100

Q.Distinguish between comparative statements and common-size statements.

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