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.

Prosperity Pursuit

Prosperity Pursuit

Those who truly want to attain a financially free mindset, have only to set their minds on it, and acquire the proper means, as they do in relation to any other aim which they want to achieve, and it can be easily done.

Get My Free Ebook

Post a comment