Tools of Analysis — Comparative Statements and Common-Size Statements

Comparative Statement

A Comparative Statement (Comparative Balance Sheet or Comparative Income Statement) places the figures of two or more accounting periods side by side, and adds two further columns — the Absolute Change (Current Year figure − Previous Year figure) and the Percentage Change (Absolute Change ÷ Previous Year figure × 100). This is Horizontal Analysis put into a working statement: it lets a reader see immediately not just where a business stands today, but the DIRECTION and PACE at which every item is moving.

Common-Size Statement

A Common-Size Statement (Common-Size Balance Sheet or Common-Size Income Statement) expresses EVERY item of a SINGLE period's statement as a percentage of one common base figure — Net Sales (= 100%) for the Income Statement, and Total Assets (= 100%) for the Balance Sheet. This is Vertical Analysis put into a working statement: because every figure becomes a percentage of the same base, a Common-Size Statement is what makes it possible to compare a small firm and a large firm meaningfully, or to see at a glance which cost head is eating the biggest share of every rupee of sales.