CMA Intermediate · Financial Management and Business Data Analytics

Comparative, Common-Size Financial Statements and Trend Analysis: formula sheet

Full chapter guide

Key formulas

Horizontal analysis (change): Absolute change = Current year figure − Base year figure; % change = Absolute change ÷ Base year figure × 100; Base year is the earlier year. If the base figure is zero or negative, percentage change has no meaning.
Vertical analysis (common-size): Common-size % = Item ÷ Base figure × 100; Base is total assets (or total equity and liabilities) for the balance sheet, and revenue from operations for the statement of profit and loss.
Trend percentage: Trend % = Figure of the year ÷ Figure of the base year × 100; Base year is taken as 100.
Absolute change: Absolute change = Current year figure − Base year figure; A positive result is an increase. A negative result is a decrease. Show the sign or write the word.
Percentage change: Percentage change = (Absolute change ÷ Base year figure) × 100; The base is always the earlier year. If the base year figure is zero, the percentage cannot be calculated, so write 'not defined'.
Total check: Change in total assets = Change in total equity and liabilities; In a comparative balance sheet, both sides must show the same absolute change. Use this to check your work.
Net change in a subtotal: Change in a subtotal = Sum of changes in its items; Compute subtotals from the changes or from the year totals. Both routes must agree.
Common-size percentage (balance sheet): Item % = (Item amount ÷ Total assets) × 100; Use total of equity and liabilities if that is the stated base; it equals total assets.
Common-size percentage (income statement): Item % = (Item amount ÷ Net sales) × 100; Net sales means revenue from operations after returns and discounts, unless the question gives another base.
Check total: Sum of component percentages = 100% of the relevant total; Assets add to 100%; equity and liabilities add to 100%. Use this to catch errors.
Change in composition: Change in share = Item % (current year) − Item % (base year); Expressed in percentage points, not as a percentage change.
Trend percentage (index number): Trend % = (Item value in the given year ÷ Item value in the base year) × 100; The base year always works out to 100. Use the same base year for every item.
Percentage change from the base year: Change % = Trend % − 100; A positive result means an increase over the base year. A negative result means a decrease.
Year-on-year change (for comparison): Change % = (Current year − Previous year) ÷ Previous year × 100; This uses the previous year, not the base year. Do not mix it up with trend percentages.
Rebasing to a new year: New index = (Old index of the year ÷ Old index of the new base year) × 100; Use this when the base year is changed and the original figures are not given.

Quick revision

Comparative statement = horizontal analysis, with absolute and percentage change.
Percentage change = (Current year − Previous year) ÷ Previous year × 100.
The earlier year is always the denominator in a comparative statement.
If the earlier year figure is zero, the percentage change cannot be calculated.
Common-size statement = vertical analysis, every item as a percentage of a base.
Balance Sheet base is total assets (equal to total equity and liabilities).
Statement of Profit and Loss base is revenue from operations.
Trend index = (Current year ÷ Base year) × 100, with base year = 100.
Trend analysis always divides by the base year, not the previous year.
Common-size statements allow comparison of firms of different size.
Always add a short comment: what rose, what fell, and why it matters.
Use Schedule III headings when the question gives a company's statements.

Common mistakes

Confusing horizontal and vertical analysis Fix: Horizontal compares one item across years. Vertical compares items to a base within one year.
Using the current year as the base for percentage change Fix: Always divide the change by the earlier (base) year figure.
Using the current year as the base for percentage change Fix: Always divide by the earlier year. Write 'Base = previous year' at the top of your page.
Dropping the sign of a decrease Fix: Always calculate current minus previous. Show a negative sign or write '(decrease)'.
Using the wrong base, such as total sales including taxes or gross sales, or using total current assets for items of the whole balance sheet. Fix: Write the base at the top of your answer before you start calculating.
Confusing common-size with comparative statements and showing only absolute changes. Fix: Remember: common-size is each item as a percentage of a base within one year; comparative is change between years.
Dividing by the previous year instead of the base year Fix: Always keep the base-year figure as the fixed denominator for the whole row.
Not setting the base year at 100 Fix: Write 100 for the base year against every item, including ones you think are obvious.

Exam tips

For 'meaning, objectives and limitations' questions, use headings and short points. Examiners give marks per distinct point.
In MCQs, the usual traps are horizontal versus vertical analysis and internal versus external analysis. Decide from the data given.
Always show the base year in percentage-change workings. A correct method earns step marks even if arithmetic slips.
End every numerical answer with a one-line interpretation. Many students lose marks by omitting it.
Link users to tools: lenders to solvency ratios, investors to profitability and market ratios, suppliers to liquidity.
Show the base year clearly and divide by it every time. Examiners check the method, so a wrong base loses the marks for the whole column.
Compute totals and subtotals before the changes. Then use the balance sheet check to catch errors early.
Write a short interpretation even if the question only says 'prepare'. Link at least two movements, such as sales against costs.