Comparative balance sheet definition
/What is a Comparative Balance Sheet?
A comparative balance sheet presents side-by-side information about an entity's assets, liabilities, and shareholders' equity as of multiple points in time. For example, a comparative balance sheet could present the balance sheet as of the end of each year for the past three years. Another variation is to present the balance sheet as of the end of each month for the past 12 months on a rolling basis. In both cases, the intent is to provide the reader with a series of snapshots of a company's financial position over time, which is useful for developing trend line analyses (though this works better when the reader has the entire set of financial statements to work with and not just the balance sheet).
The comparative balance sheet is not required under GAAP for a privately-held company or a nonprofit entity, but the SEC does require it in numerous circumstances for the reports issued by publicly-held companies, particularly the annual Form 10-K and the quarterly Form 10-Q. The usual SEC requirement is to report a comparative balance sheet for the past two years (with additional requirements for quarterly reporting).
There is no standard format for a comparative balance sheet. It is somewhat more common to report the balance sheet as of the least recent period furthest to the right, though the reverse is the case when you are reporting balance sheets in a trailing twelve-months format.
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Example of a Comparative Balance Sheet
Here is an example of a comparative balance sheet that contains the balance sheet as of the end of a company's fiscal year for each of the past three years:
ABC International
Statement of Financial Position
| as of 12/31/20X3 |
as of 12/31/20X2 |
as of 12/31/20X1 |
|
| Current assets | |||
| Cash | $1,200,000 | $900,000 | $750,000 |
| Accounts receivable | 4,800,000 | 3,600,000 | 3,000,000 |
| Inventory | 3,600,000 | 2,700,000 | 2,300,000 |
| Total current assets | $9,600,000 | $7,200,000 | $6,050,000 |
| Total fixed assets | 6,200,000 | 5,500,000 | 5,000,000 |
| Total Assets | $15,800,000 | $12,700,000 | $11,050,000 |
| Current liabilities | |||
| Accounts payable | $2,400,000 | $1,800,000 | $1,500,000 |
| Accrued expenses | 480,000 | 360,000 | 300,000 |
| Short-term debt | 800,000 | 600,000 | 400,000 |
| Total current liabilities | $3,680,000 | $2,760,000 | $2,200,000 |
| Long-term debt | 9,020,000 | 7,740,000 | 7,350,000 |
| Total liabilities | 12,700,000 | 10,500,000 | 9,550,000 |
| Shareholders’ equity | 3,100,000 | 2,200,000 | 1,500,000 |
| Total liabilities and equity | $15,800,000 | $12,700,000 | $11,050,000 |
The comparative balance sheet reveals that ABC has increased the size of its current assets over the past few years, but has also recently invested in a large amount of additional fixed assets that have likely been the cause of a significant boost in its long-term debt.
Advantages of a Comparative Balance Sheet
The key advantage of a comparative balance sheet is that it gives you the ability to spot trends in the presented data. When the presentation is over a short period of time, these trends probably relate to seasonal changes in financial position. A well-conducted financial analysis can improve the financial position of a business by identifying operational and financial issues that can be corrected.
Disadvantages of a Comparative Balance Sheet
A comparative balance sheet can be misleading when the accounts in which transactions have been stored are changed during the comparison period. For example, a non-trade receivable might be shifted into the Other Assets account. When this happens, the balance in the original line item will drop, while the balance in the receiving line item will increase. The reason for this change will not be apparent to the financial statement user, who may be confused by the change.