Comparative Analysis

454 WordsMay 17, 20152 Pages
A comparative analysis is used to compare data from different periods of time, and different data in relation to each other (Investorwords.com, 2015). The comparative analysis could take the form of a vertical analysis or a horizontal analysis. In a vertical analysis, the figures in the statement are compared to total assets and total liabilities and stockholder’s equity. Thus, the user is given a percent of the whole. Unlike vertical analysis, horizontal analysis “evaluates a series of financial statement data over a period of time” (Kimmel, 2011). This technique utilize the percent of change formula to show how much an item has increased or decreased. The data is displayed using two columns of sequential periods, a third column to represent the amount of change and a forth column to represent the percent of increase or decrease. Used together these methods depict data both in relation to one point in time and in relation to sequential periods. It is an invaluable tool for giving users a glimpse at the finances of a company, and provide a comparison for viewing a particular company’s progress. Ratio analysis compares relations between financial statement accounts to identify the strengths and weaknesses of a company. It is used to obtain a quick indication of a firm’s financial performance in several key areas. Not only does ratio analysis include comparing the numbers from a balance sheet, income statement and cash flow statement, but it also compares the number against previous years, other companies, the industry or even the economy in general. Ratios look at the relationships between individual values and relate them to how a company has performed in the past, and how it might perform in the future. Ratio analysis is used to evaluate relationships among financial statement items. The ratios are used to identify trends over time for one company

More about Comparative Analysis

Open Document