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Ch 12 · Financial Analysis · T.S. Grewal — Analysis of Financial Statements

Comparative &
Common-Size Statements

75 MCQs 50 Flashcards T.S. Grewal Class 12 Updated May 2026
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Chapter Overview

Chapter 12 introduces two of the most widely used presentation tools in Financial Statement Analysis — the Comparative Statement and the Common-Size Statement. A Comparative Statement is a tool of horizontal analysis in which figures of two (or more) periods of the SAME firm are placed side-by-side. The format uses four money columns: Previous Year ₹, Current Year ₹, Absolute Change ₹ and Percentage Change %. The two principal Comparative Statements are the Comparative Balance Sheet (built on Schedule III, Part I heads) and the Comparative Statement of Profit & Loss (which begins with Revenue from Operations and ends with Profit After Tax).

A Common-Size Statement, on the other hand, is a tool of vertical analysis. Every item of a single-period statement is expressed as a percentage of a chosen base. For the Common-Size Balance Sheet, the base is Total Assets (which equals Total Equity & Liabilities by the accounting equation) — taken as 100%. For the Common-Size Statement of Profit & Loss, the base is Revenue from Operations — also taken as 100%. By converting every figure to a percentage, Common-Size Statements neutralise the effect of size and make inter-firm comparison meaningful — a small startup can be compared with a large competitor on a like-for-like basis.

The two tools are complementary: the Comparative Statement answers "what changed and by how much?", while the Common-Size Statement answers "what is the structure of the firm's financials?" — and both share the same set of limitations (historical-cost basis, ignored qualitative factors, vulnerability to changes in accounting policy and window-dressing, and the need to be read alongside ratios and judgement).

What You'll Learn
Key Concepts
Definition
Comparative Statement
Horizontal analysis tool that places figures of two or more periods of the same firm side-by-side to study changes over time.
Format
Comparative B/S — 4-column format
Particulars · Previous Year ₹ · Current Year ₹ · Absolute Change ₹ · Percentage Change %. Heads from Schedule III, Part I.
Format
Comparative P&L format
Begins with Revenue from Operations, builds Total Revenue, deducts Total Expenses to PBT, then deducts Tax to give PAT.
Formula
% Change formula
% Change = (Absolute Change ÷ Previous Year figure) × 100. Base = Previous Year, never the current year. PY = 0 → "N/A".
Definition
Common-Size Statement
Vertical analysis tool — every item shown as a percentage of a chosen base in a single period. Also called Component Percentage Statement.
Base
Common-Size B/S
Base = Total Assets (= Total Equity & Liabilities by the accounting equation) = 100%. Each item shown as % of this base.
Base
Common-Size P&L
Base = Revenue from Operations = 100%. Total Revenue exceeds 100% by the % of Other Income.
Compare
Vertical vs Horizontal
Comparative = horizontal = change over time. Common-Size = vertical = structure within one period. Complementary tools, not substitutes.
Caveats
Limitations
Historical-cost basis, ignores inflation and qualitative factors, distorted by accounting-policy changes, vulnerable to window-dressing.
Sample MCQs
Q1. In a Comparative Statement, the Percentage Change of any line item is computed as:
A. (Absolute Change ÷ Current Year figure) × 100
B. (Current Year ÷ Previous Year) × 100
C. (Absolute Change ÷ Previous Year figure) × 100
D. (Previous Year ÷ Current Year) × 100
Percentage Change = (Absolute Change ÷ Previous Year) × 100. The PREVIOUS year is the base. A positive % means growth; a negative % (in brackets) means decline.
Q2. Total Assets ₹40,00,000. Inventory ₹4,00,000. Inventory as a percentage on the Common-Size Balance Sheet is:
A. 40%
B. 25%
C. 10%
D. 4%
Common-Size % = (Inventory ÷ Total Assets) × 100 = (4,00,000 ÷ 40,00,000) × 100 = 10%. The base is Total Assets = 100%.
Q3. Revenue from Operations doubled from ₹10,00,000 to ₹20,00,000. Cost of Materials Consumed (the only expense) rose from ₹6,00,000 to ₹14,00,000. The percentage change in Profit Before Tax is:
A. 50%
B. 100%
C. 200%
D. 150%
PBT 2024 = 10,00,000 − 6,00,000 = 4,00,000. PBT 2025 = 20,00,000 − 14,00,000 = 6,00,000. Change = 2,00,000. % = (2,00,000 ÷ 4,00,000) × 100 = 50%. Although revenue doubled, profit grew only 50% because expenses grew faster than revenue (133.33% vs 100%).
Frequently Asked Questions
What is a Comparative Statement?
A Comparative Statement is a tool of horizontal analysis that places figures of two or more accounting periods of the same firm side-by-side so that the change in each item can be studied across time. It is most commonly prepared for the Balance Sheet (Comparative Balance Sheet) and the Statement of Profit & Loss (Comparative Statement of P&L). Each line item gets four money columns: Previous Year ₹, Current Year ₹, Absolute Change ₹ and Percentage Change %.
How is Percentage Change calculated?
Absolute Change = Current Year figure − Previous Year figure. Percentage Change = (Absolute Change ÷ Previous Year figure) × 100. The base for the % calculation is always the PREVIOUS year, never the current year. Decreases are conventionally shown in brackets, e.g., (₹50,000) or (20)%. If the Previous Year figure is NIL (zero), the % change cannot be computed and is shown as 'Not applicable' or a dash (—).
What is a Common-Size Statement?
A Common-Size Statement (also called a Component Percentage Statement) is a tool of vertical analysis. Every line item in a single period's financial statement is expressed as a percentage of a chosen base, which is taken as 100%. By converting every figure to a percentage, Common-Size Statements remove the effect of size and allow firms of different sizes to be compared on an even footing.
What is the base for the Common-Size B/S vs P&L?
For the Common-Size Balance Sheet, the base is Total Assets (which equals Total Equity & Liabilities by virtue of the accounting equation) and is taken as 100%. For the Common-Size Statement of Profit & Loss, the base is Revenue from Operations and is taken as 100%. All other items are expressed as percentages of these bases.
What is the difference between Comparative and Common-Size analysis?
A Comparative Statement studies CHANGE across two or more periods of the same firm — it is horizontal analysis. A Common-Size Statement studies STRUCTURE within a single period, expressing each item as a percentage of a chosen base — it is vertical analysis. Comparative answers "what changed?"; Common-Size answers "what is the make-up?". The two tools are complementary and best used together.
What are the limitations of these tools?
Both tools share these limitations: (i) based on historical-cost data, they ignore inflation and changes in price level; (ii) they ignore qualitative factors such as employee morale, brand strength and management quality; (iii) results are distorted when the firm changes its accounting policy (depreciation method, inventory valuation); (iv) they inherit any window-dressing in the underlying accounts; (v) they are voluntary management tools, not mandatory under the Companies Act, 2013. They should be used alongside ratios and judgement.