Comprehensive Analysis of Financial Statements for Class 12 Accountancy
By ConceptScroll Team · Published on 1 July 2026 · 5 min read
Analysis of Financial Statements is a crucial chapter in Class 12 Accountancy that helps students understand how to evaluate a company’s financial health by comparing data across periods. This blog covers key concepts, formulas, and examples based on NCERT to simplify learning and exam preparation.
What is Analysis of Financial Statements?
Analysis of Financial Statements involves examining financial data from a company's balance sheet and profit and loss account to understand its performance and financial position over time. It helps Class 12 students and business stakeholders evaluate growth, profitability, and solvency. This process uses various tools and techniques, with comparative statements being a fundamental method.
Key points:
- It compares financial figures of two or more periods.
- Helps identify trends, improvements, or declines.
- Useful for investors, management, creditors, and analysts.
By mastering this chapter from the NCERT syllabus, students develop skills to interpret real-world financial data effectively.
Understanding Comparative Statements (Horizontal Analysis)
Comparative statements present financial figures side by side for two or more accounting periods, usually for the balance sheet and statement of profit and loss. This method is also known as horizontal analysis because it compares data across time horizontally.
Steps to prepare Comparative Statements:
1. List absolute figures for each item for two periods. 2. Calculate absolute increase or decrease by subtracting the earlier year's figure from the later year's figure. 3. Calculate percentage change using the formula:
$$\text{Percentage Change} = \left(\frac{\text{Absolute Change}}{\text{Base Year Figure}}\right) \times 100$$
Benefits:
- Highlights growth or decline areas.
- Shows financial trends clearly.
- Assists in decision making for stakeholders.
Example:
| Particulars | 2015-16 (Rs.) | 2016-17 (Rs.) | Absolute Change (Rs.) | Percentage Change (%) |
|---|---|---|---|---|
| Revenue from operations | 60,00,000 | 75,00,000 | 15,00,000 | 25.00 |
| Expenses | 44,00,000 | 50,60,000 | 6,60,000 | 15.00 |
This table shows a 25% increase in revenue and 15% increase in expenses from 2015-16 to 2016-17.
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Formulae and Calculation Techniques in Financial Statement Analysis
To analyze financial statements effectively, Class 12 students must be comfortable with key formulas:
- Absolute Change:
$$\text{Absolute Change} = \text{Current Year Figure} - \text{Previous Year Figure}$$
- Percentage Change:
$$\text{Percentage Change} = \left(\frac{\text{Absolute Change}}{\text{Previous Year Figure}}\right) \times 100$$
- Example:
If revenue in 2013-14 is Rs. 60,00,000 and in 2014-15 is Rs. 75,00,000:
- Absolute Change = 75,00,000 - 60,00,000 = Rs. 15,00,000
- Percentage Change = (15,00,000 / 60,00,000) × 100 = 25%
- Gross Profit:
$$\text{Gross Profit} = \text{Net Sales} - \text{Cost of Goods Sold}$$
These calculations help in assessing financial growth, profitability, and operational efficiency.
Practical Example: Comparative Statement of Profit and Loss
Let's examine a comparative statement of profit and loss for two years to understand financial progress:
| Particulars | 2015-16 (Rs.) | 2016-17 (Rs.) | Absolute Change (Rs.) | Percentage Change (%) |
|---|---|---|---|---|
| Revenue from operations | 60,00,000 | 75,00,000 | 15,00,000 | 25.00 |
| Other incomes | 1,50,000 | 1,20,000 | (30,000) | (20.00) |
| Total Revenue | 61,50,000 | 76,20,000 | 14,70,000 | 23.90 |
| Expenses | 44,00,000 | 50,60,000 | 6,60,000 | 15.00 |
| Profit before tax | 17,50,000 | 25,60,000 | 8,10,000 | 46.29 |
| Tax | 6,12,500 | 10,24,000 | 4,11,500 | 67.18 |
| Profit after tax | 11,37,500 | 15,36,000 | 3,98,500 | 35.03 |
Interpretation:
- Revenue increased by 25%, indicating business growth.
- Expenses also rose but at a lower rate (15%), improving profitability.
- Profit after tax grew by 35%, showing better financial health.
This example demonstrates how comparative statements provide insights into financial performance.
Comparative Balance Sheet Analysis for Class 12 Students
A comparative balance sheet compares assets, liabilities, and equity of a company over two periods to analyze financial position changes.
| Particulars | March 31, 2016 (Rs.) | March 31, 2017 (Rs.) | Absolute Change (Rs.) | Percentage Change (%) |
|---|---|---|---|---|
| Share Capital | 15,00,000 | 20,00,000 | 5,00,000 | 33.33 |
| Reserve and Surplus | 4,00,000 | 3,00,000 | (1,00,000) | (25.00) |
| Long-term Borrowings | 6,00,000 | 9,00,000 | 3,00,000 | 50.00 |
| Trade Payables | 2,00,000 | 3,00,000 | 1,00,000 | 50.00 |
| Total Equity and Liabilities | 27,00,000 | 35,00,000 | 8,00,000 | 29.63 |
Key Observations:
- Share capital increased by 33.33%, indicating fresh equity infusion.
- Reserve and surplus decreased by 25%, possibly due to dividend distribution or losses.
- Long-term borrowings and trade payables increased, reflecting higher liabilities.
This analysis helps students understand shifts in financial structure and solvency.
Why is Analysis of Financial Statements Important for Class 12 Students?
For Class 12 students studying Accountancy, mastering the analysis of financial statements is essential because:
- It builds a foundation for understanding business finance and accounting principles.
- Helps in interpreting real company data, enhancing practical knowledge.
- Prepares students for competitive exams and future commerce studies.
- Develops analytical skills to assess company performance critically.
- Enables informed decision-making in business scenarios.
By practicing comparative statements and related calculations, students can confidently tackle exam questions and case studies in NCERT Accountancy.
Frequently asked questions
What is the purpose of comparative statements in financial analysis?
Comparative statements help compare financial data over two or more periods to identify trends and changes.
How do you calculate percentage increase or decrease in financial figures?
Percentage change = (Absolute change ÷ Previous year figure) × 100.
Why are comparative statements also called horizontal analysis?
Because they analyze financial data across periods horizontally in a side-by-side format.
What is absolute change in financial statement analysis?
Absolute change is the difference between the current year figure and the previous year figure.
Who uses the analysis of financial statements?
Management, investors, creditors, and analysts use financial statement analysis for decision-making.
What is gross profit in accountancy?
Gross profit equals net sales minus the cost of goods sold.
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