What are comparative financial statements?

Comparative financial statements are the complete set of financial statements that an entity issues (consider to be the income statement, balance sheet, and statement of cash flows), with each one showing not only the results or cash flows of the current reporting period (or its position as of the end of the period), but also the same information for one or more preceding periods. Another variation is to report the results of all 12 preceding months on a rolling basis. Comparative financial statements are quite useful for the following reasons:

• Provides a comparison of an entity's financial performance over multiple periods, so that you can determine trends (see horizontal analysis).
• Provides a comparison of expenses to revenues and the proportions of various items on the balance sheet over multiple periods (see vertical analysis).
• May be useful for predicting future performance, though you should rely more on operational indicators and leading indicators than on historical performance for this type of analysis.

It is customary to issue comparative financial statements with additional columns containing the variance between periods, as well as the percentage change between periods.

The Securities and Exchange Commission requires that a publicly held company use comparative financial statements when reporting to the public on the Form 10-K and Form 10-Q.

Comparative Financial Statements Example

The following is an example of a balance sheet that is presented on a comparative basis.

ABC International
Balance Sheet

	as of 12/31/20X3	as of 12/31/20X2	as of 12/31/20X1
Current assets
Cash	$1,200	$900	$750
Accounts receivable	4,800	3,600	3,000
Inventory	3,600	2,700	2,300
Total current assets	$9,600	$7,200	$6,050
Total fixed assets	6,200	5,500	5,000
Total Assets	$15,800	$12,700	$11,050
Current liabilities
Accounts payable	$2,400	$1,800	$1,500
Accrued expenses	480	360	300
Short-term debt	800	600	400
Total current liabilities	$3,680	$2,760	$2,200
Long-term debt	9,020	7,740	7,350
Total liabilities	12,700	10,500	9,550
Shareholders’ equity	3,100	2,200	1,500
Total liabilities and equity	$15,800	$12,700	$11,050

Related Topics

Common size balance sheet 
Comparative balance sheet
How to prepare a cash flow statement
What are pro forma financial statements?
What is a comparative income statement?