What is the Difference Between Comparative and Common Size Statement?

The main difference between comparative and common size statements lies in the way financial information is presented and the insights they provide. Here are the key differences between the two:

1. Purpose: Comparative financial statements are used for comparing financial performance for internal purposes and for inter-firm comparisons, while common size statements are prepared for the reference of stakeholders and for comparing a company's results with similar companies.
2. Format: Comparative financial statements present financial data for numerous years side by side, showing changes in monetary values. Common size financial statements, on the other hand, express each line item as a percentage of a base figure, emphasizing the relative proportion of elements within the financial statement.
3. Base of Comparison: In comparative statements, the value of the basis year is compared with the value of the current year, while common size statements compare the value of the current year with the current year.
4. Number of Years Required: A minimum of two financial statements are required for comparative analysis, while common size analysis can be done for a single year by comparing figures of the same year.
5. Use of Percentages or Absolute Values: Comparative financial statements may use both absolute figures and percentages, while common size financial statements use only percentage form.

In summary, comparative financial statements focus on comparing financial performance over time and between companies, while common size financial statements emphasize the relative importance of individual figures within a financial statement, making it easier to compare a company's results with similar companies.

Comparative Table: Comparative vs Common Size Statement

The main difference between comparative and common size statements lies in their purpose, the information they present, and the type of analysis they are used for. Here is a table summarizing the differences between the two:

Comparative financial statements are useful for analyzing the growth of a business over a period of time and comparing the financial performance of a company with its previous years or with other companies. On the other hand, common size financial statements are useful for comparing a company's performance with similar companies and for showing the relative importance of individual figures in the statement.