Comparative Balance Sheet Analysis

by Victoria Lee Blackstone ; Updated June 28, 2018
Use a spreadsheet to easily and efficiently prepare a common size analysis.

Savvy business owners periodically analyze their company’s metrics so they can continue moving toward their goals. An important analytical tool is the financial statement. These statements create a paper trail that identifies assets, liabilities and overall profitability, all of which are key contributors to the overall health of any business. There are different kinds of financial statements, and most of them chart the progress of a company over a certain time period. But a balance sheet is the statement that stops the clock by pinpointing a company’s financial standing at a specific point in time.

Comparative Balance Sheet Analysis

A comparative balance sheet analysis is a simple way of comparing the data on two or more balance sheets that have different dates. You can compare several balance sheets from your company, each of which has the same date but on different months or different years. For example, you may want to analyze the month-end totals for each month in a year or year-end totals over several years to chart market trends and how this affects your company's growth.

Balance Sheet Basics

A balance sheet looks at three things: assets, liabilities and shareholders' equity. It doesn't report the amount of revenue a company receives. Assets are what a company owns, which can be tangible or intangible. Tangible assets include property, equipment, machinery and inventory. Intangible assets include intellectual property, such as patents and trademarks. Liabilities include the money that a company owes through debt obligations, such as loan repayments, payroll payments to employees and money that’s owed to suppliers for goods or services. Shareholders' equity represents the net worth of a company, which is the value that would be left if a company sold its assets and paid its liabilities.

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Balance Sheet Formula

A balance sheet is so named because the equation that drives it must balance. The equation is: assets = liabilities + shareholders' equity. This formula is a simple accounting equation that reflects two columns in a company's ledger. The left-hand (or top) column is a listing of a company's assets, and the right-hand (or bottom) column lists the liabilities and shareholders' equity. A company typically lists its assets in the order of which they're projected to be converted into cash. For example, current assets may include inventory, and non-current assets, also called fixed assets, may include office furniture and machinery.

Balance Sheet Tie-Ins

The data you find on your comparative balance sheet analyses are numbers that you'll also see reflected on your other financial statements. For example, although your balance sheets do not include revenue and expenses, the changes in assets and liabilities reported on your comparative balance sheets are related to the totals on your income financial statement. Both reports offer an insight into your company's overall gains and losses.

About the Author

Victoria Lee Blackstone is a horticulturist and a professional writer who has authored research-based scientific/technical papers, horticultural articles, and magazine and newspaper columns. After studying botany and microbiology at Clemson University, Blackstone was a University of Georgia Master Gardener Coordinator. She is also a former mortgage acquisition specialist for Freddie Mac in Atlanta, GA.

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