3.4 Comparative and Common-size Financial Statements
As seen in the previous NCFM module4, we often use comparative financial statements in order to compare different financial ratios of a firm with the industry averages and other peers in the industry whereas we use common-size financial statements in order to compare performance of a firm or two firms over time. Financial ratios in isolation mean nothing. We need to observe them change over time or compare financial ratios of a cross section of firms in order to make sense of them.