Table

relative to the base amount. We will call the resulting statements common-base year statements.

For example, from 2001 to 2002, Prufrock's inventory rose from $393 to $422. If we pick 2001 as our base year, then we would set inventory equal to 1.00 for that year. For the next year, we would calculate inventory relative to the base year as $422/393 = 1.07. In this case, we could say inventory grew by about 7 percent during the year. If we had multiple years, we would just divide the inventory figure for each one by $393. The resulting series is very easy to plot, and it is then very easy to compare two or more different companies. Table 3.7 summarizes these calculations for the asset side of the balance sheet.

common-base year statement

A standardized financial statement presenting all items relative to a certain base-year amount.

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