Comparative Income Statement: Meaning, Examples and Benefits

ABC Limited has supplied the following information on its two fiscal quarters., i.e., 2016 and 2017.

We will be referring to the following income statement for Example Corporation as we continue our explanation of the income statement. Let’s look at an example to better comprehend the comparative profit and loss statement. For example, you might have columns for 2023, 2022, and 2021 (reading from left to right).

Financial Accounting

You performed nearly as well as the industry in year 1 but fell further from your target in year 2. That a goal for year 3 should be trying to increase your net profit margin. The presentation of the changes from year to year for each line item can be analyzed to see where positive progress is occurring over time, such as increases in revenue and profit and decreases in cost. Conversely, less favorable readings may be isolated using this approach and investigated further. Furthermore, this analysis is supported by the increase in the advertisement expenses of the company for the year 2018.

  • It is also prepared to analyse the increase or decrease in every item of Revenue and Expenses in terms of rupees and percentages.
  • If this is the case, you may have a problem for the next year because you’ll have to cut prices (and reduce profitability) in order to sell the same slow-moving inventory.
  • We will be referring to the following income statement for Example Corporation as we continue our explanation of the income statement.
  • To compare competing businesses, find the percentage of revenue for each line item.
  • After discounting for any nonrecurring events, it’s possible to arrive at the value of net income applicable to common shares.

The basis for the report is the standard income statement listing all revenues and expenses and figures for the period under review. Next, calculations are done to show the changes from one period to the next along with percentage calculations based on the choice between horizontal or vertical analysis. The spreadsheet application requires a great deal more work to set up the calculations and does leave more room for error. The use of accounting software standard reports, or report writing modules is a much more efficient and accurate way to prepare a comparative income statement.

What is a Comparative Income Statement?

It further hints towards the fact that the company might find it challenging to meet its short-term obligations. Using each of these categories, we can find dozens of different ratios, but we’ll focus on a few examples. Rounding amounts is beneficial because it allows readers to focus on the most important digits. Omitting insignificant digits is also justified by the concept of materiality, because a lender or investor will not be misled without the least important digits. Harold Averkamp (CPA, MBA) has worked as a university accounting instructor, accountant, and consultant for more than 25 years. Let’s say that the following information has been taken from the statement of Profit and Loss of ABC Ltd.

Comparative Balance Sheet Format

In addition, there are two different formats that can be used in presenting a comparative income statement for analysis, including horizontal analysis and vertical analysis. A comparative income statement can be used to examine key financial information. For example, you may compare the previous year’s Return on Investment (ROI) with this year’s ROI.

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. The comparative income statement can be created using accounting software or a spreadsheet application such as Excel®.

Comparative Statement Limitations

Hence, such a fact indicates that the company gave more importance to earning non-operating profits over operating one. Such additional machinery leads to an incredible improvement in the production capacity of the company during the year. This expenditure was provided for by the company proprietors and the external lenders. Secondly, the cash and bank balance of Kapoor and Co. have decreased by 91.5%.

A comparative income statement combines information from several income statements as columns in a single statement. It helps you identify financial trends and measure performance over time. The comparative income statement displays absolute values, changes in absolute figures, infinite data in percentage terms, and a rise (or decrease) in percentages over time.

As we understand that accounting isn’t the most interesting aspect of running a business. When you take the time to go over your financial records, the results might be eye-opening. You can see the results of all of your hard work and obtain insight into which decisions will help you achieve.

For one thing, we can use it to compare The College Shop’s results to those of its industry. When we make this comparison, we find that the specialized retail industry (in which your company operates) reports an average gross profit margin of 41 percent. For year 1, therefore, we had a higher ratio than the industry; in year 2, though we had a lower ratio, we were still in the proverbial ballpark.

For example, as illustrated in the following, income from accounting services increased from 2013 to 2014 by $15,000 ($150,000 – $135,000). This analysis is considered horizontal because the percentage calculation is based on the one item, income from accounting services and continues down the statement for each line item. The income statement for a company shows revenues minus expenses equaling net income or loss for a specific period, e.g. for one month, one quarter, or for the fiscal or calendar year. It provides a picture of profitability and the total for the period for each revenue and expense line item. Business investors use comparative income statements to look at different companies.

Again, the amount and percentage differences for each line are listed in the final two columns and can be used to target areas of interest. For instance, the increase of $344,000 in total assets represents a 9.5% change in the positive direction. Total liabilities increased by 10.0%, or $116,000, from year to year. The change in total stockholders’ equity of $228,000 is a 9.3% increase.

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