Comparative Balance Sheet Analysis

by Robert Shaftoe ; Updated July 27, 2017
Use a spreadsheet to easily and efficiently prepare a common size analysis.

A balance sheet is a financial statement containing a snapshot of a company's assets, liabilities and shareholders' equity at a specific moment. It is typically prepared quarterly and annually and presented to shareholders, creditors and investors. Company financial performance metrics tend to be similar within an industry. Therefore, performing a comparative balance sheet analysis can provide a large amount of information regarding a company's internal performance and financial health as well as performance rank within its industry. This analysis also allows insight into certain company performance measures.

Common-size Analysis

Begin a comparative balance sheet analysis by preparing a common-size analysis. This involves showing all asset items as a percent of total assets and all liability and shareholders' equity items as a percent of total liabilities and shareholders' equity. Display three to five years of balance sheet data, including common-sized data. Common-sizing data allows you to more easily analyze category balances and trends, including movements in cash as a percent of total assets and total liabilities as a percent of total liabilities and equity.

Benchmark Analysis

It can be useful to compare a company's balance sheet data against competitors or a peer group. Peer group companies should be comparable with your subject company in terms of size, line of business and other qualitative factors. It can be difficult to find balance sheet data for private companies, but the Risk Management Association publishes annual financial statement studies for benchmarking purposes. Financial data are broken down by industry into various size groups, and they include common-sized balance sheet items. Use this data to make observations of your subject company's balance sheet relative to its peers.

Trend Analysis

Using historical and benchmark data, analyze historical trends in balance sheet items. Discern whether items such as total assets, cash, receivables and shareholders' equity are generally trending upward or downward or exhibiting a high degree of variability over the period being analyzed. Compare subject company data to benchmark data to observe if the subject company's performance is in line with peers in terms of long-term trends and also in terms of general performance.

Ratio Analysis

The ratio analysis is one of the most important components of the comparative balance sheet analysis. Ratios could be examined for trends and also compared against peer group data. The RMA Annual Statement Studies contain peer group financial ratios, broken down into performance quartiles, that can be used to benchmark your subject company's performance. Analyze and compare the company's leverage and working capital ratios. Also, combine income statement and balance sheet data to calculate important ratios such as return on assets, return on equity and asset utilization and turnover ratios. These provide useful information about inventory and accounts receivable and accounts payable turnover.

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