Page 38 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 3: Analysis of Financial Statements

6. The firm has not recorded any changes in the investments, equity share capital and Notes
long-term loans.

3.4.2 Comparative (Income) Financial Statement Analysis

This analysis is being carried out in between the income statements of the various accounting
durations of the firm, with other firms in the industry and with the industrial average.
This will facilitate the firm to know about the stature of itself regarding the financial performance.
It facilitates to understand about the changes pertaining to various financial data which closely
relevantly connected with the financial performance:

1. Change in the gross sales
2. Change in the net sales
3. Change in gross profit and net profit
4. Change in operating profit
5. Change in operating expenses

6. Change in the volume of non-operating income
7. Change in the non operating expenses.
The ultimate purpose of the comparative (income) financial statement analysis is as follows:
1. To study the income earning and expenditure spending pattern of the firm for two or more
years.
2. To identify the changing pattern of the income and expenditure of the firms.
3. The preparatory steps for the preparation of the comparative financial statement (income)
analysis

The first and foremost important step is to have the following information and should take
preparatory steps
1. While preparing the comparative statement of Profit & Loss Account, the particulars for
the financial factors are required.
2. The second most important for the preparation of the comparative Profit & Loss account is
yester financial data extracted from the Profit and Loss A/c or Profit and Loss Accounts.
3. The next most important requirement to have an effective comparison with the yester
financial data is current year information extracted from the balance sheet of the firm or of
the other firms.
4. After having been procured the financial data pertaining to various time periods are ready
for comparison; to determine or identify the level of increase or decrease taken place in the
operating financial performance of the firms.
5. To determine the level of increase or decrease in financial performance, the percentage
analysis to be carried out in between them.

Example: Prepare the comparative income statement from the following:

Particulars 2004 (`) 2005 (`)
Sales 2,00,000 2,50,000
(–) Cost of goods sold 1,00,000 1,30,000
Contd…

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