Financial Statements Of A Company

Step 1: Define.
It is one of the comparative financial statements used for analysis of profitability trends.
Step 2: Purpose.
To compare performance of a business over different years and identify growth/decline in income, expenditure and net profit.
Step 3: Preparation steps.

List all items of Income Statement (Sales, Other Income, Expenses, Taxes, Net Profit).
Prepare columns for at least two years (e.g., 2023 and 2024).
Show absolute figures for both years side by side.
Add a column for change (increase/decrease) in absolute terms.
Add another column for percentage change.

Step 4: Example (format).
Final Answer: % Quciktip

Step 1: Define common-size statements.
In common-size statements, each item is expressed as a percentage of a common base: - In Balance Sheet → percentage of total assets/liabilities.
- In Profit & Loss A/c → percentage of net sales.
Step 2: Why percentage?
The objective is to make comparison easy by converting absolute figures into relative percentages. Ratios are used separately in ratio analysis, not in common-size statements.
Step 3: Conclude.
Thus, common-size statements are prepared in the form of percentage.
Final Answer:

Step 1: Define intra-firm vs inter-firm.
- Intra-firm analysis: Comparison within the same firm over time.
- Inter-firm analysis: Comparison between two or more firms in the same industry.
Step 2: Vertical analysis.
Vertical analysis refers to analysing financial statements by expressing each item as a percentage of a base figure (e.g., sales).
Step 3: Conclude.
Since the question specifies analysis of two or more organisations, the correct answer is Inter-firm analysis.
Final Answer:

Step 1: Different stakeholders.
- Managers: Use financial statements for decision-making and performance evaluation.
- Financial institutions: Assess repayment capacity before giving loans.
- Creditors: Check liquidity and ability of business to pay dues.
Step 2: Conclude.
Since all these parties depend on financial statements, the correct answer is “All of these”.
Final Answer:

Step 1: Define Financial Statements.
Financial statements are formal records summarizing the financial activities and position of a business.
Step 2: Major components.
- Statement of Profit and Loss: Shows the performance of the business (income, expenses, and net profit/loss).
- Balance Sheet: Shows the financial position on a given date (assets, liabilities, equity).
Step 3: Conclude.
Since both Profit & Loss A/c and Balance Sheet are part of financial statements, the correct answer is “Both (A) and (B)”.
Final Answer:

Step 1: Nature of financial statements.
Financial statements (like Balance Sheet, Profit & Loss A/c) are based on books of accounts, which record past business transactions.
Step 2: Clarify difference.
- Anticipated fact: Refers to forecasts, not FS.
- Estimated fact: Only certain provisions involve estimates, but overall FS is historical.
- Recorded fact: FS is based on systematically recorded transactions.
Step 3: Conclude.
Hence, financial statement is a Recorded Fact.
Final Answer:

Step 1: Purpose of annual report.
An annual report is a formal communication of financial statements, directors’ reports, and audit reports.
Step 2: Recipients.
The annual report is prepared by management and directors, but it is issued for shareholders to provide transparency of performance.
Step 3: Conclude.
Hence, the annual report is issued for shareholders.
Final Answer: