Through financial statements of different times, method showing the trends of changes in economic situation and profitability is known as comparative statements method.
In this method of financial statement analysis, following matters are included.
- Here, comparison of income statements and balance sheets of two years or more than two years are done.
- In the comparison of previous year we can know about percentage and rupees increase/decrease in a respectives data of current year.
- We can know about the trend of development of a business unit.
- This comparison is done in horizontal form. Thus it is known as horizontal analysis to financial statements.
- By following formulas, we can finding out the necessary missing data.
(a) On the basis of previous year and current year data :
- Amount of change (increase/decrease) = Amount of current year – Amount of previous year
- Percentage of change (increase/decrease) = \(\frac{Amount \,of\, Change(increase/ decrease)}{ Amount \,of\, Previous \,year} × 100\)
(b) To find out amount and change in amount of current year on the basis of amount and precentage of previous year :
Amount of current year = Amount of previous year × \(\frac{(100+ Change \,in \,Percentage )}{100}\)
OR
Change in amount = Amount ol previous year × \(\frac{Change \,in\, Percentage}{ 100}\)
(c) To find out amount and change in amount of previous year on the basis of amount and percentage change of current year :
Amount of previous year = Amount of current year × \(\frac{100}{(100+ Change \,in \,Percentage )}\)
OR
Change in amount = Amount of current year × \(\frac{Change\, in\, Percentage }{(100+ Change \,in\, Percentage )}\)
