Lesson 1, Topic 1
In Progress

A Comparative Format


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Comparative analysis, also described as comparison analysis, is used to measure the financial relationships between variables over two or more reporting periods. Businesses use comparative analysis to identify their competitive positions and operating results over a defined period. Larger organizations may often comprise the resources to perform financial comparative analysis monthly or quarterly, but it is recommended to perform an annual financial comparison analysis at a minimum.

Financial Comparatives

Financial statements outline the financial comparatives, which are the variables defining operating activities, investing activities and financing activities for a company. Analysts assess company financial statements using percentages, ratios and amounts when making financial comparative analysis. This information is the business intelligence decision maker use for determining future business decisions. A financial comparison analysis may also be performed to determine company profitability and stability. For example, management of a new venture may make a financial comparison analysis periodically to evaluate company performance. Determining losses prematurely and redefining processes in a shorter period will favour compared to unforeseen annual losses.

Comparative Format

The comparative format for comparative analysis in accounting is a side by side view of the financial comparatives in the financial statements. Comparative analysis accounting identifies an organization’s financial performance. For example, income statements identify financial comparable such as company income, expenses, and profit over a period. A comparison analysis report identifies where a business meets or exceeds budgets. Potential lenders will also utilize this information to determine a company’s credit limit.

Comparative Analysis in Business

Financial statements play a pivotal role in comparative analysis in business. By analysing financial comparatives, businesses are able to pinpoint significant trends and project future trends with the identification of considerable or abnormal changes. Business comparative analysis against others in their industry allows a company to evaluate industry results and gauge overall company performance.

SELF-CHECK ACTIVITY

  1. Define comparative format to analysis a business?