Comparative and common-size statements

The essentials

Comparative statements place the figures of two or more years side by side and show the absolute change and percentage change for each item. They reveal trends, such as whether expenses are rising faster than revenue. Common-size statements express every item as a percentage of a common base: revenue from operations in the Statement of Profit and Loss, and the total of the Balance Sheet (total assets, or total equity and liabilities) in the Balance Sheet.

Key points

• Absolute change = Current year − Previous year.
• Percentage change = Absolute change ÷ Previous year × 100.
• Common-size percentage = Item ÷ Base × 100.
• Comparative statements are tools of horizontal analysis; common-size statements are tools of vertical analysis.
• Common-size statements allow comparison between firms of different sizes because all figures become percentages.

Exam tips

Use the previous year as the base for percentage change, not the current year. In a common-size Statement of Profit and Loss, revenue from operations is always 100%.

Common mistakes

• Dividing the change by the current year's figure.
• Using profit, rather than revenue from operations, as the base for a common-size Statement of Profit and Loss.