The correct answer is Option (1) → (A)-(II), (B)-(IV), (C)-(I), (D)-(III)
Each List-I item is a tool of analysing financial statements; List-II gives the other name of the tool or something it works with.
(A) Comparative statements — this matches (II) Horizontal Analysis. The same items are compared across two or more periods, side by side, so it is called horizontal analysis.
(B) Common Size Statement — this matches (IV) Vertical Analysis. Every item is shown as a percentage of one common total (revenue or total assets) of the same year, so it reads down the column: vertical analysis.
(C) Cash flow Analysis — this matches (I) Operating Activities. A cash flow statement classifies cash flows into operating, investing and financing activities.
(D) Ratio Analysis — this matches (III) Debt Equity Ratio. The debt-equity ratio is one of the accounting ratios, used to judge solvency.
NCERT (2026-27 edition):
Tools of Analysis of Financial Statements – “… Comparative Statements: These are the statements showing the profitability and financial position of a firm for different periods of time in a comparative form to give an idea about the position of two or more periods. It usually applies to the two important financial statements, namely, balance sheet and statement of profit and loss prepared in a comparative form. The financial data will be comparative only when same accounting principles are used in preparing these statements. If this is not the case, the deviation in the use of accounting principles should be mentioned as a footnote. Comparative figures indicate the trend and direction of financial position and operating results. This analysis is also known as ‘horizontal analysis’.” NCERT (2026-27 edition):
Tools of Analysis of Financial Statements – “… Common Size Statements: These are the statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item. The percentage thus calculated can be easily compared with the results of corresponding percentages of the previous year or of some other firms, as the numbers are brought to common base. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. Thus, common size statements are useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for the same year or for several years. This analysis is also known as ‘Vertical analysis’.” NCERT (2026-27 edition):
Preparation of Cash Flow Statement – “As stated earlier cash flow statement provides information about change in the position of Cash and Cash Equivalents of an enterprise, over an accounting period. The activities contributing to this change are classified into operating, investing and financing.” NCERT (2026-27 edition):
Debt-Equity Ratio – “Debt-Equity Ratio measures the relationship between long-term debt and equity.” |
