Analysis of Financial Statements
Class 12 · Accountancy
3 ideas in Class 12 Accountancy, explained in plain words, with games and quizzes to practise.
Comparative Statements
Part of: Comparing across time and size
Comparative statements place two or more years side by side and show both the rupee change and the percent change for each line. Falls are often shown in brackets. For example, revenue moving from 500000 to 650000 rises 150000, which is 30 percent. Percent change lets a small line and a big line be judged fairly.
Why it matters. Raw rupees hide speed: a 150000 rise means little on a giant base and a lot on a small one. Percents reveal which lines sprint and which crawl.
Formulas
- Absolute change = Current year - Base year
- Percent change = Change x 100 / Base year
- Rise shown plainly, fall shown in brackets
Key words
- Absolute change
- : Rupee rise or fall over years.
- Percent change
- : Change as share of base year.
- Base year
- : Earlier year used for compare.
- Year on year
- : This year against last year.
Try it in two minutes
- Write revenue 500000 and 650000 for two years.
- Subtract to find the 150000 rise. Ask: is that big or small?
- Divide by the first year to find 30 percent. Ask: what does that add?
Try at home. Salaries move from 200000 to 240000. Find the absolute and percent change.
Common-Size Statements
Part of: Comparing across time and size
Common-size statements turn every line into a percent of one base: revenue for the profit and loss account, total assets for the balance sheet. Size differences vanish, so a corner shop and a giant can be compared line by line. For example, expenses of 600000 on revenue of 1000000 read as 60 percent.
Why it matters. Rupees cannot race across firms of different sizes, but percents can. Common size exposes who controls costs and who merely looks big.
Formulas
- Common-size percent = Item x 100 / Base total
- P and L base = Revenue from operations
- Balance sheet base = Total assets
Key words
- Common size
- : Every line as base percent.
- Base total
- : 100 percent anchor line.
- Vertical analysis
- : Study within one year.
- Cost share
- : Cost percent of revenue.
Try it in two minutes
- Take revenue 1000000 as 100 beads.
- Count 60 beads as expenses. Ask: what share is that?
- Take assets 500000 as 100 beads and mark current assets 200000.
- Compare two years of shares. Ask: which share improved?
Try at home. Revenue 2000000, staff cost 500000. Express staff cost in common size.
Uses, Limits and the Analysis Toolkit
Part of: Using analysis wisely
Analysis turns statements into judgments about profit, safety and trends, using comparative, common-size, ratio and cash-flow tools together. Yet it has limits: clever presentation can dress weak figures, price rises bend old data, and different policies spoil comparison. For example, profit rising from 80000 to 100000 is a 25 percent climb worth cheering only after checking policy and prices.
Why it matters. Tools answer only the questions they are built for. Trusting one ratio blindly, or ignoring inflation, turns sharp arithmetic into false comfort.
Key words
- Window dressing
- : Clever hiding of weak spots.
- Trend study
- : Reading direction over years.
- Profitability
- : Power to earn surplus.
- Solvency
- : Power to meet long dues.
Try it in two minutes
- Ask 3 questions: how profitable, how safe, which way next?
- Match each question to a tool card on the table.
- List 3 traps: dressing, prices, policies. Ask: which trap bites here?
- Judge the 25 percent profit climb only after clearing all 3 traps.
Try at home. A shop's profit moves from 60000 to 75000. Find the percent rise and name one trap to check.
What your child will practise
- Common-Size Statements: Space Puzzle (Clue Puzzle)
- Common-Size Statements: Space Quick Fire (Quick Fire)
- Comparative Statements: Ocean Puzzle (Clue Puzzle)
- Comparative Statements: Ocean Quick Fire (Quick Fire)
- Uses, Limits and the Analysis Toolkit: Jungle Quick Fire (Quick Fire)
- Quiz: Common-Size Statements (8 questions)
- Quiz: Comparative Statements (8 questions)
- Quiz: Uses, Limits and the Analysis Toolkit (8 questions)