Financial Statements play a very significant role in providing the financial data of the company to the users of accounting like owners, stakeholders, creditors, investors, banks, etc. The two main types of financial statements that present the information are common-size financial statements and comparative-size financial statements. In this article, we will understand the complete difference between common size and comparative size statements. The main topics of the content are as follows.
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Definition Of Common Size Statement
A common-size statement refers to the financial statement that represents the financial performance of the firm for the same year in the form of a percentage of the same base figures. This means that these statements show the financial performance of the organization in the form of percentages. Also, it is to be remembered that common size calculation is the same as calculating the net margin for a firm.
These statements assist to analyze and report the financial performance of the business over several periods with varying revenue or sales figures. The analysts analyze financial statements by contemplating each of the line items as a percentage of the base quantity/amount, for that specific accounting spell.
Definition Of Comparative Size Statement
Comparative size statements are the financial statements that show or represent the financial performance of the business or other organization for successive years side by side, in order to compare the business growth over a period of time. This kind of statement assists the investors to examine the business trends and make excellent decisions for investments.
The main features of comparative statements are.
- Provides a comparison of the company’s financial performance over the periods, and thus helps them to examine the trend of the business.
- These kinds of statements disclose and help businesses to indicate the presence of accounting errors.
- These statements help a firm to predict future performances and results.
Difference Between Common Size And Comparative Statement(Table)
|Basis For Difference||Common Size Statements||Comparative Statements|
|Definition||These statements show the financial performance of the business by expressing the components of financial statements as a percentage in the same base year.||The statements that present the financial performance of the firm or a company for several years side by side in the form of both percentages and absolute values are called comparative statements.|
|Objective||These statements are prepared for the reference of stakeholders.||These kinds of statements are prepared for internal decision-making purposes and for inter-firm comparison|
|Types of Analysis||They are also known as vertical analysis as the data is analyzed vertically.||The financial statements are analyzed side by side and so these are also known as horizontal analyses.|
|Types Of Comparison||Use only the percentage form.||Use both absolute figures and percentages.|
So, with the above discussions, we can simply conclude that the difference between these terminologies depends on how the financial data in the statements are presented. Comparative size statements are more convenient to compute ratios and directly compare the performances and results because these statements present financial information for several years side by side. While on the other hand, common-size financial statements show all items in the form of percentages making them useful for analyzing current-year results.