Comparative Statement

What is a Comparative Statement?

A comparative statement is a document used to compare a specific financial statement with prior period statements. Previous financials are introduced alongside the most recent figures in side-by-side segments, empowering investors to recognize trends, track a company's progress and compare it with industry rivals.

How Comparative Statements Work

Analysts, investors, and business managers utilize a company's income statement, balance sheet, and cash flow statement for comparative purposes. They need to perceive how much is spent chasing revenues starting with one period then onto the next and how things on the balance sheet and the developments of cash shift after some time.

Comparative statements show the effect of business choices on a company's bottom line. Trends are distinguished and the performance of managers, new lines of business and new products can be assessed, without flipping through individual financial statements.

Comparative statements can likewise be utilized to compare various companies, accepting that they follow the equivalent accounting principles. For instance, they can show how various businesses operating in a similar industry respond to market conditions. Reporting just the most recent dollar sums makes it hard to compare the performances of companies of different sizes. Adding prior period figures, complete with percentage changes, assists with killing this problem.

The Securities and Exchange Commission (SEC) requires public companies to distribute comparative statements in 10-K and 10-Q reports.

Cash Flow Statement

Each business must generate adequate cash inflows to pay for operations. For instance, managers might compare the ending balance in cash every month throughout recent years to decide whether the ending cash balance is expanding or declining. Assuming company sales are developing, the manufacturer requires more cash to operate every month, which is reflected in the ending cash balance.

A descending trend in the ending cash balance means that the receivable balance is developing and that the firm necessities to take moves toward collect cash quicker.

Income Statement

A percentage of sales show is frequently used to generate comparative financial statements for the income statement — the area of a financial statement dedicated to a company's revenues and expenses. Introducing every revenue and expense category as a percentage of sales makes it simpler to compare periods and survey company performance.

Comparative Statement Example

Expect, for instance, that a manufacturer's cost of goods sold (COGS) increments from 30% of sales to 45% of sales more than three years. Management can utilize that data to make changes, for example, finding more competitive pricing for materials or training employees to bring down labor costs. Then again, an analyst might see the cost of sales trend and reason that the higher costs make the company less alluring to investors.

Comparative Statement Limitations

Comparative statements are less dependable when companies go through enormous changes. A big acquisition and move into new end markets can transform businesses, making them various substances from previous reporting periods.

For instance, if Company An acquires Company B it might report a sudden sharp leap in sales to account for every one of the extra revenues that Company B generates. Simultaneously, profit margins could fix at a disturbing rate since Company B has a less lean manufacturing process, spending more money to create the goods it sells.

Features

• Previous financials are introduced alongside the most recent figures in side-by-side segments, empowering investors to track a company's progress and compare it with peers without any problem.
• The Securities and Exchange Commission (SEC) requires public companies to distribute comparative statements in 10-K and 10-Q reports.
• A comparative statement is a document that compares a specific financial statement with prior period statements.