Comparative Income Statement or comparative statement is a financial statement that defines the current financial position of a business and compares it with prior period statements. Here, financial statements of the previous year are presented alongside the latest figures to track the company’s progress in an easy way.
Tthe primary motive of these statements is to determine the profitability of the business by comparing two or more accounting periods. Read on to understand how do Comparative Income Statements work, their types, how to prepare it and its format,
A comparative income statement provides information on the financial state of assets and liabilities of a company for different time periods. However, it also shows the changes that have taken place over different accounting periods in terms of assets and liabilities.
Individuals such as investors, analysts and business managers use a company’s income statement for comparative purposes. These statements help to check the amount spent in chasing revenues from one period to another with the various movements of cash over time.
Comparative Income Statement analysis has two different types, and they are as follows:
Horizontal analysis is one of the popular techniques of comparative income statements demonstrating the financial change in both absolute and percentage terms. It helps in observing seasonality and growth patterns in an easy way. Moreover, it is also known as Trend Analysis due to its ability to analyse trends.
Vertical analysis is another technique of exhibiting a comparative income statement in terms of the relative size of the line items. It allows easy comparison of income statements from different-sized companies.
However, it shows each item on the income statement as a percentage, which makes the comparison easy, straightforward and understandable. Additionally, it can also be used for timeline analysis by assessing individual statements for a reporting period.
The steps required to prepare a comparative income statement are:
The format of a comparative income statement is as follows:
|Particulars||Previous Year (₹)||Current Year (₹)||Absolute Change (Increase or Decrease) (₹)||Percentage Change (Increase or Decrease) (%)|
|I. Revenue from operations||xxx||xxx||xxx||xxx|
|II. Other income||xxx||xxx||xxx||xxx|
|III. Total Revenue||xxx||xxx||xxx||xxx|
|Cost of Materials Consumed||xxx||xxx||xxx||xxx|
|Purchases of Stock in Trade||xxx||xxx||xxx||xxx|
|Changes in inventories of Finished Goods, Work-in-Progress and Stock-in-Trade||xxx||xxx||xxx||xxx|
|Employees Benefit Expenses||xxx||xxx||xxx||xxx|
|Depreciation and Amortisation||xxx||xxx||xxx||xxx|
|V. Profit before Tax (III – IV)||xxx||xxx||xxx||xxx|
|(-) Income Tax||xxx||xxx||xxx||xxx|
|VI. Profit after Tax||xxx||xxx||xxx||xxx|
Let us understand this more clearly with a comparative income statement example:
Let’s say that the following information has been taken from the statement of Profit and Loss of ABC Ltd.
|Particulars||31st March 2021 (₹)||31st March 2022 (₹)|
|Revenue from Operations||5000000||7000000|
|Employees Benefit Expenses||500000||600000|
|Depreciation and Amortisation Expenses||100000||120000|
|Purchase of Stock-in-Trade||2500000||3000000|
|Change in inventories of Stock-in-Trade||150000||200000|
|Other Expenses – Tax Rate 30%||200000||300000|
If we prepare a Comparative Income Statement based on the information provided above, it will look something like this:
|Particulars||Note No.||Previous Year (₹)||Current Year (₹)||Absolute Change (Increase or Decrease) (₹)||Percentage Change (Increase or Decrease) (%)|
|(1)||(2)||(3)||(4)||(5) (4 – 3)||(6) (5/3×100)|
|I. Revenue from operations||5000000||7000000||2000000||40.00|
|II. Total Revenue||5000000||7000000||2000000||40.00|
|Purchases of Stock in Trade||2500000||3000000||500000||20.00|
|Changes in inventories of Finished Goods, Work-in-Progress and Stock-in-Trade||150000||200000||50000||33.33|
|Employees Benefit Expenses||500000||600000||100000||20.00|
|Depreciation and Amortisation||100000||120000||20000||20.00|
|V. Profit before Tax (II – III)||1550000||2780000||1230000||79.35|
|VI. Less: Income Tax @30%||465000||834000||369000||79.35|
|VII. Profit after Tax (IV – VI)||1085000||1946000||861000||79.35|
The main advantages which make comparative income statements useful are:
The limiting disadvantages of a comparative income statement are:
The best way to create a comparative income statement is by using accounting software or a spreadsheet application like MS Excel. However, the basis for this report is the standard income statement which contains all the revenue and expense figures for the particular period. After this, do the required calculations to show respective absolute and percentage changes from one period to another.
Ans: Comparative financial analysis includes developing comparative statements which establish a company’s financial situation at different times. These statements help in determining a company’s profitability by comparing values of multiple accounting periods.
Ans: A comparative balance sheet is a statement presenting side-by-side financial data of an entity’s assets, liabilities and shareholders’ equity. This results in determining the financial position of an organisation over different periods through comparison.
Ans: Although both comparative income statements and balance sheets are used to measure a company’s performance, they are not the same. A comparative income statement contains information about the revenue and expenses of the organisation, whereas a balance sheet works with assets and liabilities.
Ans: The primary limitation of comparative financial statements is that they do not present the changes in the values of various items in relation to assets and liabilities. Also, these statements are not useful when comparing the performance of two or more businesses.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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