AccountancyComparative and common-size statements
One year's figures say little by themselves. Put two years side by side, or turn every figure into a percentage of sales, and patterns appear.
Analysis of financial statements
Financial statement analysis means examining the figures in the statements to judge the profitability, efficiency and financial soundness of a business. The main tools are:
- Comparative statements (horizontal analysis): figures of two or more years side by side, with the change in rupees and in per cent.
- Common-size statements (vertical analysis): every item shown as a percentage of a base figure of the same year.
- Ratio analysis.
- Cash flow statement.
Comparative statement
It has five columns: Particulars; Previous year; Current year; Absolute change; Percentage change.
- Absolute change = Current year figure − Previous year figure.
- Percentage change = Absolute change ÷ Previous year figure × 100.
Example. Prepare a comparative Statement of Profit and Loss of Tapti Ltd.
| Particulars | 2024-25 (₹) | 2025-26 (₹) | Absolute change (₹) | Change (%) |
|---|---|---|---|---|
| Revenue from operations | 10,00,000 | 12,50,000 | 2,50,000 | 25% |
| Other income | 40,000 | 50,000 | 10,000 | 25% |
| Total income | 10,40,000 | 13,00,000 | 2,60,000 | 25% |
| Cost of materials consumed | 6,00,000 | 7,20,000 | 1,20,000 | 20% |
| Employee benefits expense | 1,50,000 | 1,80,000 | 30,000 | 20% |
| Other expenses | 90,000 | 1,00,000 | 10,000 | 11.11% |
| Total expenses | 8,40,000 | 10,00,000 | 1,60,000 | 19.05% |
| Profit before tax | 2,00,000 | 3,00,000 | 1,00,000 | 50% |
| Tax (30%) | 60,000 | 90,000 | 30,000 | 50% |
| Profit after tax | 1,40,000 | 2,10,000 | 70,000 | 50% |
Reading it
- Revenue from operations grew by 25%.
- Cost of materials and employee cost grew by only 20%, and other expenses by about 11%. Total expenses rose by about 19%, more slowly than revenue.
- Because expenses grew more slowly than income, profit before tax rose by 50%, twice the growth in revenue.
- Conclusion: the company has not only sold more but has controlled its costs better.
Common-size statement
In a common-size Statement of Profit and Loss, revenue from operations is taken as 100 and every other item is expressed as a percentage of it. In a common-size balance sheet, the total of the balance sheet is taken as 100.
| Particulars | 2024-25 (₹) | 2025-26 (₹) | 2024-25 (% of revenue) | 2025-26 (% of revenue) |
|---|---|---|---|---|
| Revenue from operations | 10,00,000 | 12,50,000 | 100% | 100% |
| Other income | 40,000 | 50,000 | 4% | 4% |
| Total income | 10,40,000 | 13,00,000 | 104% | 104% |
| Cost of materials consumed | 6,00,000 | 7,20,000 | 60% | 57.6% |
| Employee benefits expense | 1,50,000 | 1,80,000 | 15% | 14.4% |
| Other expenses | 90,000 | 1,00,000 | 9% | 8% |
| Total expenses | 8,40,000 | 10,00,000 | 84% | 80% |
| Profit before tax | 2,00,000 | 3,00,000 | 20% | 24% |
| Tax (30%) | 60,000 | 90,000 | 6% | 7.2% |
| Profit after tax | 1,40,000 | 2,10,000 | 14% | 16.8% |
Reading it
- Materials took 60 paise of every rupee of revenue last year and 57.6 paise this year.
- Employee cost fell from 15% to 14.4%, and other expenses from 9% to 8%.
- Total expenses fell from 84% to 80% of revenue, so profit before tax rose from 20% to 24%.
- Profit after tax improved from 14% to 16.8% of revenue.
The comparative statement told us how much each item changed. The common-size statement tells us how the make-up of each rupee of revenue changed. The two are read together.
Common-size balance sheet: a short example
| Particulars | Amount (₹) | % of total |
|---|---|---|
| Shareholders' funds | 6,50,000 | 54.2% |
| Non-current liabilities | 3,00,000 | 25% |
| Current liabilities | 2,50,000 | 20.8% |
| Total | 12,00,000 | 100% |
| Non-current assets | 7,00,000 | 58.3% |
| Current assets | 5,00,000 | 41.7% |
| Total | 12,00,000 | 100% |
More than half the assets are financed by the owners, and current assets (41.7%) are twice the current liabilities (20.8%).
The two compared
| Basis | Comparative statement | Common-size statement |
|---|---|---|
| Also called | Horizontal analysis | Vertical analysis |
| Compares | The same item across years | Different items within one year |
| Shows | Change in rupees and per cent | Each item as a percentage of a base |
| Needs | At least two years' figures | One year is enough; more years add value |
| Best for | Growth and trend | Structure, and comparing firms of different size |
Steps for the examination
- Draw the columns and write the items in the Schedule III order.
- Fill in the two years' figures; work out sub-totals (total income, total expenses, profit before and after tax).
- For a comparative statement, compute change and percentage for every line, including sub-totals.
- For a common-size statement, divide every line by revenue from operations (or by the balance sheet total) and multiply by 100.
- Round percentages to two decimal places and say so.
Limits of these tools
- They rest on the financial statements and share their limits: historical cost, estimates and policy differences.
- A percentage on a tiny base can look dramatic and mean little.
- They show what changed, not why. The reasons must be sought in the business itself.
Questions students ask
What is the base in a common-size statement of profit and loss?
Revenue from operations is taken as 100, and every other item is shown as a percentage of it.
How is percentage change calculated in a comparative statement?
Absolute change divided by the previous year's figure, multiplied by 100.
Why is a comparative statement called horizontal analysis?
Because the eye moves across the columns, comparing the same item from one year to the next.
More Class 12 topics
For study, and independent. These pages explain accountancy as it is generally taught in Class 11, Class 12 and B.Com courses in India, in our own words with our own examples, reviewed in November 2026. This site is not connected with NCERT, CBSE, ICAI or any board or university. Syllabuses change: follow your own board's or university's current syllabus and textbook. Nothing here is professional accounting, tax or legal advice.