Comparative Ratio Analysis

Comparative and Ratio Analysis

Some have asked what the difference is between comparative analysis and ratio analysis is. In any company, investors are concerned in the core or maintainable earnings of a company, and make comparisons from period to period. Comparative analysis interprets data vertically and horizontally within a relevant industry to determine financial worth. Comparative analysis performs internal or intra-company, inter-company analysis, and industry examinations. Ratio analysis uses liquidity, solvency, and profitability information draw basic conclusions about its financial health. Both comparative and ration analysis are aimed at determining if a company can sustain in its respected industry.

Horizontal analysis, which is also known as trend analysis, evaluates the financial statement data over a period of time. Its main purpose is to determine the increase or any decrease within that financial statement that can be expressed either as an amount or as percentage. The increase in net income means increase in overall net sales and as well as decrease in income tax expense. “Vertical analysis, also known as common-size analysis, is used for evaluating the financial statement data that expresses each item in a financial statement as a percentage of a base amount.” (Kimmell, Weygandt, Kieso, 2001). Vertical analysis can also shows the % change in the individual’s asset and liability. So, in this way, measurement of changes in percentages which has taken place from period to period is very useful and straightforward method. “Ratio analysis expresses the relationship among selected items of financial statement data.” (Kimmell, Weygandt, Kieso, 2001).

Comparative examinations of intra-company analysis detects changes in financial relationships and significant trends. In financial statement's items over several accounting periods may be presented together to detect the emerging