Which company’s balance sheet should I choose to make my accountancy project on the topic ‘commonsize and comparative balance sheet’?
Answers
Comparative Balance Sheet
A comparative balance sheet showcases:
Assets and liabilities of business for the previous year as well as the current year
Changes (increase or decrease) in such assets and liabilities over the year both in absolute and relative terms
Thus, a comparative balance sheet not only gives a picture of the assets and liabilities in different accounting periods. It also reveals the extent to which the assets and liabilities have changed during such periods.
Furthermore, such a statement helps managers and business owners to identify trends in the various performance indicators of the underlying business.
What To Study While Analyzing A Comparative Balance Sheet?
A business owner or a financial manager should study the following aspects of a comparative balance sheet:
1. Working Capital
Working capital refers to the excess of current assets over current liabilities.This helps a financial manager or a business owner to know about the liquidity position of the business.
2. Changes in Long-Term Assets, Liabilities, and Capital
The next component that a financial manager or a business owner needs to analyze is the change in the fixed assets, long-term liabilities and capital of a business. This analysis helps each of the stakeholders to understand the long-term financial position of a business.
3. Profitability
Working capital refers to the excess of current assets over current liabilities.This helps a financial manager or a business owner to know about the liquidity position of the business.
Steps To Prepare a Comparative Balance Sheet
1. Step 1
Firstly, specify absolute figures of assets and liabilities relating to the accounting periods considered for analysis. These amounts are mentioned in Column I and Column II of the comparative balance sheet.
2. Step 2
Find out the absolute change in the items mentioned in the balance sheet. This is done by subtracting the previous year’s item amounts from the current year ones. This increase or decrease in absolute amounts are mentioned in Column III of the comparative balance sheet.
3. Step 3
Finally, calculate the percentage change in the assets and liabilities of the current year relative to the previous year. This percentage change in assets and liabilities is mentioned in Column V of the comparative balance sheet.
Percentage Change = (Absolute Increase or Decrease)/Absolute Figure of the Previous Year’s Item) * 100