Vertical and Horizontal Analysis

Only available on StudyMode
  • Download(s) : 1109
  • Published : September 16, 2013
Open Document
Text Preview
9/15/13

What is the difference between vertical analysis and horizontal analysis? | AccountingCoach.com Q&A

Search over 1,000 accounting topics:

Search our Site
Home Login About 1,500 Testimonials

Accounting Topics

Test Yourself

Bookkeeping

Q&A

Careers

Dictionary

Pro Materials

Q&A Home

Q&A by Topic

Suggest a Question

Subscribe via RSS

What is the difference between vertical analysis and horizontal analysis? Vertical analysis reports each amount on a financial statement as a percentage of another item. For example, the vertical analysis of the balance sheet means every amount on the balance sheet is restated to be a percentage of total assets. If inventory is $100,000 and total assets are $400,000 then inventory is presented as 25 ($100,000 divided by $400,000). If cash is $8,000 then it will be presented as 2 ($8,000 divided by $400,000). The total of the assets will now add up to 100. If the accounts payable are $88,000 they will be presented as 22 ($88,000 divided by $400,000). If owner’s equity is $240,000 it will be presented as 60 ($240,000 divided by $400,000). The restated amounts from the vertical analysis of the balance sheet will be presented as a common-size balance sheet. A commonsize balance sheet allows you to compare your company’s balance sheet to another company’s balance sheet or to the average for its industry. Vertical analysis of an income statement results in every income statement amount being presented as a percentage of sales. If sales were $1,000,000 they would be restated to be 100 ($1,000,000 divided by $1,000,000). If the cost of goods sold is $780,000 it will be presented as 78 ($780,000 divided by sales of $1,000,000). If interest expense is $50,000 it will be presented as 5 ($50,000 divided by $1,000,000). The restated amounts are known as a common-size income statement. A common-size income statement allows you to compare your company’s income statement to another company’s or to the...
tracking img