Financial statements are prepared for presenting the financial information of the company to the users of accounting information like owners, stakeholders, creditors, banks, investors, etc. It can also be used to compare the financial performance of a business with its previous years as well as other competitors.
There are two main types of presenting information of financial statements, which are:
- Comparative Financial Statement
- Common size Financial Statement
Comparative financial statement is a document that represents the financial performance of the business by comparing them at different time periods. It is helpful for investors to analyse the trends of the business and make proper investment decisions.
Also see:
- Uses and Importance of Financial Statements
- Financial Statements MCQs
- Tools of Analysis of Financial Statements
- Limitations of Financial Statements
Common size statements are financial statements that are expressed in the form of percentage. The assets, liabilities and sales all are presented in the form of percentages. This method analyses financial statements by taking into consideration each of the line items as a percentage of the base amount, for that particular accounting period.
Let us have a look at some of the points of difference between the comparative and common size financial statements.
| Comparative financial statement is a kind of document that presents the financial performance of the organisations side by side with the previous year performances, in order to compare the growth of business over a period of time | Common size financial statement is a way of presenting financial information of a business by expressing the components of financial statements as percentages. |
| Comparative statements are also known as horizontal analysis as financial statements are compared side by side | Common size statements are also known as vertical analysis as data is analysed vertically |
| Comparative statements are used for comparing financial performance for internal purposes and for inter-firm comparison | Common size statements are prepared for the reference of stakeholders. |
| Comparative statements make use of both absolute figures and percentages | Common size statements use only percentage form |
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