Vertical analysis or common size analysis is a method of financial statement analysis where each item is shown as a percentage of a base figure. For the income statement, items are shown as a percentage of total sales. For the balance sheet, items are shown as a percentage of total assets or liabilities. The formula for vertical analysis calculates the percentage by taking an individual item and dividing it by the base amount, then multiplying by 100. Vertical analysis allows for easier comparison of financial statements across companies and over time by showing the relative proportion of accounts.
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Horizontal and Vertical Analysis
Vertical analysis or common size analysis is a method of financial statement analysis where each item is shown as a percentage of a base figure. For the income statement, items are shown as a percentage of total sales. For the balance sheet, items are shown as a percentage of total assets or liabilities. The formula for vertical analysis calculates the percentage by taking an individual item and dividing it by the base amount, then multiplying by 100. Vertical analysis allows for easier comparison of financial statements across companies and over time by showing the relative proportion of accounts.
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Vertical analysis or common size analysis
What is Vertical Analysis Formula?
Vertical analysis is a kind of financial statement analysis wherein each item in the financial statement is shown in percentage of the base figure. This is one of the popular methods of financial statements used as it is simple and also called a common size analysis. Here all the items in the income statement are stated as a percentage of gross sales. All the items in the balance sheet are stated as a percentage of the total assets. Whereas the opposite of the vertical analysis of financial statement is the Horizontal analysis always looks at the amount from the financial statement over the horizon of many years.
Vertical Analysis formula In the vertical analysis of financial statements, the percentage is calculated by using the below formula: Vertical Analysis formula = Individual Item / Base Amount *100 Vertical analysis formula for the Income Statement and Balance Sheet are given below – Vertical Analysis Formula (Income Statement) = Income Statement Item / Total Sales * 100 Vertical Analysis Formula (Balance Sheet) = Balance Sheet Item / Total Assets (Liabilities) * 100 To increase the effectiveness of vertical analysis multiple year’s statement or reports can be compared and comparative analysis of statements can be done. This analysis makes easier to compare the financial statements of one company with another and across the companies as one can see the relative proportion of accounts. HORIZONTAL OR TREND ANALYSIS
Horizontal analysis (also known as trend analysis) is a financial
statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations. The statements for two or more periods are used in horizontal analysis.