What is vertical analysis?

What is vertical analysis?

Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement.

What is an example of vertical analysis?

In accounting, a vertical analysis is used to show the relative sizes of the different accounts on a financial statement. For example, when a vertical analysis is done on an income statement, it will show the top-line sales number as 100%, and every other account will show as a percentage of the total sales number.

What is vertical comparison?

In Horizontal Financial Analysis, the comparison is made between an item of financial statement, with that of the base year’s corresponding item. On the other hand, in vertical financial analysis, an item of the financial statement is compared with the common item of the same accounting period.

How do you interpret comparative analysis?

Interpretation: (a) The comparative income statement reveals that there has been increase in net sales of 25% while the cost of goods sold has increased disproportionately by 50% thereby resulting in a decrease of gross profit of 25%.

How do you Analyse comparative balance sheet?

Steps To Prepare a Comparative Balance Sheet

  1. Firstly, specify absolute figures of assets and liabilities relating to the accounting periods considered for analysis.
  2. Find out the absolute change in the items mentioned in the balance sheet.

How do you explain horizontal analysis?

Horizontal analysis is the comparison of historical financial information over various reporting periods. It helps determine a companies’ growth and financial position versus competitors. The horizontal analysis technique uses a base year and a comparison year to determine a company’s growth.

How do you calculate comparative analysis?

To find the percentage change, first calculate the dollar change between each period. Consider the following example of comparative income statement analysis. If you made $45,000 in 2015 and $50,000 in 2016, the dollar change is $5,000. Then, divide the dollar change by the base year profit.

What is an example of horizontal analysis?

Horizontal analysis compares account balances and ratios over different time periods. For example, you compare a company’s sales in 2014 to its sales in 2015. The analysis computes the percentage change in each income statement account at the far right.

How many types of trends are there?


How is vertical analysis calculated?

Vertical analysis formula = (Statement line item / Total base figure) X 100. Horizontal analysis formula = {(Comparison year amount – Base year amount) / Base year amount} X 100.