Q.3. What are the purposes of Comparative Financial Statement?
Answer: The basic objectives of Comparative Financial Statements
are as under:
- Comparison of financial statements helps to identify the size
and direction of changes in financial position of an enterprise.
- These statements help to ascertain the weakness and soundness
about liquidity, profitability and solvency of an enterprise.
- These statements help the management in making forecasts for
Q.4. What are the various methods of presenting Comparative
Answer: The various methods of presenting Comparative Financial
- Ratio Analysis
- Funds Flow Statement
- Cash Flow Statement
- Comparative Income Statement
- Comparative Position Statement
- Common Size Statement
- Trend Percentage
Q.5. What is the meaning and objective of "Trend Analysis"?
Answer: Trend analysis is an important tool of horizontal
financial analysis. This is helpful in making a comparative study
of the financial statements for several years. Under this method
trend percentages are calculated for each item of the financial
statements taking the figure of base year as 100. The starting year
is taken as the base year.
The trend percentages show the relationship of each item with its
preceding year’s percentages. These percentages can also be presented
in the form of Index Numbers showing relative change in the financial
date of certain period. This will exhibit the direction to which
the concern is proceeding. The trend ratio may be compared with
the industry, in order to know the strong or weak points of a concern.
These are calculated only for major items instead of calculating
for all items in the financial statements.