Describe comparative analysis as comparison analysis. Use comparison analysis to measure the financial relationships between variables over two or more reporting periods. Businesses use comparative analysis as a way to identify their competitive positions and operating results over a defined period. Larger organizations may often comprise the resources to perform financial comparative analysis monthly or quarterly, but it is recommended to perform an annual financial comparison analysis at a minimum.
Financial statements outline the financial comparatives, which are the variables defining operating activities, investing activities and financing activities for a company. Analysts assess company financial statements using percentages, ratios and amounts when making financial comparative analysis. This information is the business intelligence decision makers use for determining future business decisions. A financial comparison analysis may also be performed to determine company profitability and stability. For example, management of a new venture may make a financial comparison analysis periodically to evaluate company performance. Determining losses prematurely and redefining processes in a shorter period will favor compared to unforeseen annual losses.
The comparative format for comparative analysis in accounting is a side by side view of the financial comparatives in the financial statements. Comparative analysis accounting identifies an organization’s financial performance. For example, income statements identify financial comparables such as company income, expenses, and profit over a period of time. A comparison analysis report identifies where a business meets or exceeds budgets. Potential lenders will also utilize this information to determine a company’s credit limit.
Financial statements play a pivotal role in comparative analysis in business. By analyzing financial comparatives, businesses are able to pinpoint significant trends and project future trends with the identification of considerable or abnormal changes. Business comparative analysis against others in their industry allows a company to evaluate industry results and gauge overall company performance. Different factors such as political events, economics changes, or industry changes influence the changes in trends. Companies may often document significant events in their financial statements that have a major influence on a change in trends.