Compare and Contrast

Compare and Contrast serves to produce a more dynamic expressiveness in a work of art by opposition or juxtaposition of different forms, lines, or colours to intensify each element’s properties.

Carrying this way of creation of art, to matters of accounts, one can draw innumerable conclusions from financial statements and take prudent financial decisions. Each element (costs, revenue, profits, expenditures…) of any financial statement then comes alive and talking.

Life in absolute terms is boring. Life lived over years is lavish life. Financial Statements are no different. How would one know whether one is improving or static if its not ‘compared and contrasted’. Of course not with the other person but self.

Accounts and Financial Statements are presented for two years to readers, one of current year and other one of immediately preceding year. This helps the reader to know whether in absolute or ‘% terms’, performance of the entity has improved, worsened or static. ‘Compare & Contrast’ tenet is also applied to Annual Budgets. Actual results are compared and contrasted, variances reported and corrective actions taken.

Take for example, the two most important fixed costs, Salaries and Rent. On absolute terms, salary expenses and rent cost may seem very high of a particular year. But when ‘compared & contrasted’ with the previous year/s, may make it look justified or otherwise taking into account scale of operations, economic environment, bottlenecks among others.

So, if you are holding a belief that you don’t know how to read and understand Financial Statements, begin with this common sense tool of ‘Compare & Contrast’. You will be amazed at your own ability hitherto untapped. ‘Compare & Contrast’ will unearth it.

So go ahead even if Debits & Credits do not lend itself to comparison and contrasting!

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