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Comparative statements are financial statements that cover a different time frame, but are formatted in a manner that makes comparing line items from one period to those of a different period an easy process. This quality means that the comparative statement is a financial statement that lends itself well to the process of comparative analysis. Many companies make use of standardized formats in accounting functions that make the generation of this type of statement quick and easy.
The benefits of a comparative statement are varied for a corporation. Because of the uniform format of the statement, it is a simple process to compare the gross sales of a given product or all products of the company with the gross sales generated in a previous month, quarter, or year. Comparing generated revenue from one period to a different period can add another dimension to analyzing the effectiveness of the sales effort, as the process makes it possible to identify trends such as a drop in revenue in spite of an increase in units sold.
Along with being an excellent way to broaden the understanding of the success of the sales effort, a comparative statement can also help address changes in production costs. By comparing line items that catalog the expense for raw materials in one quarter with another quarter where the number of units produced is similar can make it possible to spot trends in expense increases, and thus help isolate the origin of those increases. This type of data can prove helpful to allowing the company to find raw materials from another source before the increased price for materials cuts into the overall profitability of the company.
A comparative statement can be helpful for just about any organization that has to deal with finances in some manner. Even non-profit organizations can use this method to ascertain trends in annual fund raising efforts. By making use of the comparative statement for the most recent effort and comparing the figures with those of the previous year’s event, it is possible to determine where expenses increased or decreased, and provide some insight in how to plan the following year’s event.
Comparative statements are very common for even the smallest of small businesses. Even popular accounting programs such as Quickbooks generate several comparative reports based on the financial parameters that can be easily set out by the user.
They are extremely useful tools that give business owners, boards of directors, etc. an idea of whether their businesses are doing better or worse from one period to the next. Comparing year-to-year financial performance is almost mandatory in a lot of companies.