What is the Difference Between Comparative Financial Statement and Common Size Financial Statement?
Both the Comparative and the Common-Size financial statements give a more or less view of the financial statement of the company. Common-size financial statements present all the financial items under their head in percentage terms. While the Comparative financial statements present the financial data for numerous years side by side. This data is to be presented in the form of absolute values, percentages, or both.
The striking difference between the comparative and the common size financial statements is that comparative financial statements present the financial information for several years side by side in the form of absolute values or percentages or both. Whereas the common size financial statements present all these items in percentage terms more often.
Comparative Financial Statement
The Comparative financial statements are the set of complete financial statements an entity issues, by revealing its information for more than one reporting period. The financial statements which are included in this statement are:
The Income Statement shows the results for multiple periods.
The balance sheet shows the financial position of the entity.
The cash flow statement is defined as more than one period.
Variation of comparative concept also exists which is to report the information for each of the 12 previous months. The comparative financial statements are quite useful for the following reasons:
This provides a comparison of an entity's financial performance over multiple periods, which will help to determine the trends of the business.
The statements also reveal unusual spikes in the information which will help to indicate the presence of accounting errors.
This statement also enables a comparison of the expenses and revenues. This will help in the process of Cost Management.
The statements predict future performance.
Are Comparative Financial Statements Required?
A comparative statement is a type of document that is used to compare a particular financial statement with the period statements. The Previous financials are presented alongside the latest figures in side-by-side columns, this enables the investors to identify the trends, the track on which a company’s progress is determined and the same can be compared with industry rivals.
Comparative statements are used to figure out finances which is a good practice for the business owner.
Common Size Financial Statement
The common size income statement is another type of income statement in which basically each line item is expressed as a percentage of the value of revenue or the sales. Common size financial statements analyze and then compare a company's performance over several periods with varying sales figures.
Analysts analyses this common size as an income statement whereby dividing each line item (for example, gross profit, operating income, and sales and marketing expenses) by the top line (sales). Then this item is then expressed as a percentage of sales.
Example of a Common Size Income Statement
The standard figure that is used in the analysis of a common size income statement is the total sales revenue. The common size percentages are then calculated to show each line item as a percentage of the standard figure or the revenue.
This is quite important to note that the common size calculation is the same as calculating the margins for a company. The net profit margin is the net income that is divided by the sales revenue, and this is typically the common-size analysis. This is the same for calculating the gross margin (sales revenue minus the cost of goods sold, divided by sales revenue), and the operating margin (that is the gross profit minus the selling & general administrative expenses, divided by the sales revenue).
Difference Comparative Financial Statement and Common Size Financial Statement
The main differences between the comparative analysis and the common size analysis are chalked as follows −
Comparative Analysis
This analysis shows the previous year’s financial results which occur side by side along with the changes in the amount or its percentage.
This compares the current year’s results with the base year.
This is a horizontal analysis.
The results are expressed in both forms - percentages as well as pictorial form.
Both provide an inter and intra firm which can be compared.
This helps in internal decision making.
The statements are useful to compare results with their previous financial years.
Quite an importance of individual figures is shown in a statement with a comparative analysis.
Common Size Analysis
This shows the results of the same year in percentage form.
Common Size analysis compares figures of the same year.
This is a vertical analysis.
The results are to be expressed in percentages only.
Only inter-firm are required to be compared.
This common size statement prepares the references for the stakeholders.
This is used to compare the company’s results with their competitors.
This shows the relative importance of the individual figures in the statement.
FAQs on Comparative vs. Common Size Financial Statements
1. What is the main difference between a Comparative Statement and a Common-Size Statement?
The key difference lies in their analytical approach. A Comparative Statement shows the absolute and percentage change in financial data over two or more periods (horizontal analysis). In contrast, a Common-Size Statement expresses each line item as a percentage of a common base within a single period (vertical analysis), such as total assets or revenue from operations.
2. What is a Comparative Financial Statement and what is its main objective?
A Comparative Financial Statement presents financial data from different accounting periods side-by-side to facilitate comparison. Its primary objective, as per the CBSE 2025-26 syllabus, is to identify the trend and direction of change in a company's financial performance and position over time, highlighting increases or decreases in key items through absolute and percentage changes.
3. What are Common-Size Financial Statements and how are they prepared?
Common-Size Financial Statements are statements in which financial figures are converted into percentages based on a common base item to understand the proportional makeup of the statement. The preparation involves:
- For the Statement of Profit and Loss, each item is expressed as a percentage of 'Revenue from Operations'.
- For the Balance Sheet, each item is expressed as a percentage of 'Total Assets' or 'Total Equity and Liabilities'.
4. Why is a Common-Size Statement also known as 'vertical analysis'?
A Common-Size Statement is called 'vertical analysis' because the comparison runs up and down the statement for a single accounting period. Each line item is compared vertically to a single base figure (like Revenue or Total Assets) from the same column. This reveals the internal structure of the financial statement for that specific year, showing what percentage of the base each item represents.
5. In what situation would a financial analyst prefer using a Comparative Statement over a Common-Size Statement?
An analyst would prefer a Comparative Statement when the primary goal is trend analysis over time. It is ideal for tracking the growth or decline of specific items like sales, expenses, or assets in absolute monetary and percentage terms across multiple years. A Common-Size Statement is more suitable for comparing companies of different sizes or analysing structural shifts within one company for a single period.
6. What is the common base used for preparing a Common-Size Balance Sheet and a Common-Size Statement of Profit & Loss?
The common base used for preparing Common-Size Statements as per the CBSE curriculum is as follows:
- For a Common-Size Balance Sheet: The base is 'Total Assets' or 'Total Equity and Liabilities'. Every asset is shown as a percentage of total assets, and every liability or equity item is shown as a percentage of the total liabilities and equity.
- For a Common-Size Statement of Profit & Loss: The base is 'Revenue from Operations'. All other items, including expenses and profits, are shown as a percentage of this revenue figure.
7. How does a Comparative Balance Sheet differ from a Common-Size Balance Sheet in what they reveal about a company?
A Comparative Balance Sheet reveals the magnitude and direction of change in assets and liabilities between two periods. For example, it shows if fixed assets increased by ₹50,000. A Common-Size Balance Sheet, however, reveals the structural composition. It shows if fixed assets constituted 40% of total assets this year compared to 45% last year, indicating a strategic shift in the company's asset structure, irrespective of the absolute value change.
8. What is a major limitation of using Comparative Financial Statements for analysis?
A major limitation of Comparative Financial Statements is that their usefulness can be significantly reduced if there are changes in a company's accounting policies or estimation methods between the periods being compared. Furthermore, they do not automatically account for external factors like inflation, which can distort the real value of financial figures and make year-on-year comparisons misleading.
