Why is it called vertical analysis?

Vertical and horizontal analysis pdf

It is also called structural analysis, financial statement analysis or percentage of hundred basis. Its concept is simple: percentages are calculated on total values. In this way, we know the weight that each part has in the whole. For example, if we have total assets amounting to one million dollars and tangible assets amounting to 700,000, the percentage that these represent of the total is 70%. We will see this in an example later.

The process can be done with a spreadsheet. What we do is to divide each item we want to analyze by the total of the group to which it belongs and multiply by one hundred. Normally the items belonging to the equity groups are used in the numerator and in the denominator the so-called equity masses. The formula could be as follows:

This technique allows us to verify the economic-financial situation and the income statement and to make comparisons with other companies in the same economic sector. On the one hand, it informs us about the weight of each part and on the other hand, it allows us to check whether we are within the average of the sector (which is desirable) or not.

What is a vertical analysis?

Vertical analysis makes it possible to determine the proportion, participation or weight that a concept has with respect to the whole, in this case, an element within the financial structure of a company.

What is the purpose of the vertical and horizontal analysis?

The horizontal analysis allows us to determine the increases or decreases that a financial item has undergone, such as profit, sales, costs and expenses, and the vertical analysis shows us the composition of the company’s financial structure in relation to the previous period.

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What is a vertical analysis and how is it done?

Vertical analysis is a financial analysis technique that allows to know the percentage weight of each item of a company’s financial statements in a given period of time. It is also called structural analysis, financial statement analysis or percentage of hundred basis analysis.

Vertical analysis solved examples

In this essay, make an acknowledgment of the importance of financial statement analysis in making any business decisions, starting with locating the concepts needed in a basic way, later to consider the option of carrying out the above methods and being able through them to locate the areas of opportunity and threat with the certainty that the decisions will be in order to maximize monetary resources.

In this essay, make an acknowledgment of the importance of financial statement analysis in making any business decisions, starting with locating the concepts needed in a basic way, later to consider the option of carrying out the above methods and through them to locate areas of opportunity and threat with the certainty that decisions are in order to maximize the monetary resources.

“Financial statement analysis is the critical process aimed at evaluating the financial position, present and past, and results of operations of an enterprise, with the primary objective of establishing the best possible estimates and predictions of future conditions and results”. (Gerencie, 2010)

What is vertical analysis according to authors?

The Vertical Analysis of the Balance Sheet as well as the Financial Statement is the evaluation of the company’s performance in a specified period. This analysis according to Jae K. Shim and Joel G. … In the Income Statement, the sales are taken as 100% and the analysis starts from there.

What is the importance of horizontal analysis?

The horizontal analysis determines the growth or decrease of an account in a given period. It is the analysis that allows determining whether the company’s performance in a given period was good, fair or bad.

What does the horizontal analysis analyze?

Horizontal analysis is the percentage variation that an item (whatever the item or account to be measured) has undergone over time. … That is to say, to analyze whether in that period the company’s total investment increased or decreased and by what percentage it did so,” the academic indicates.

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Characteristics of vertical analysis

It is also called structural analysis, financial statement analysis or percentage of hundred basis. Its concept is simple: percentages are calculated on total values. In this way, we know the weight that each part has in the whole. For example, if we have total assets amounting to one million dollars and tangible assets amounting to 700,000, the percentage that these represent of the total is 70%. We will see this in an example later.

The process can be done with a spreadsheet. What we do is to divide each item we want to analyze by the total of the group to which it belongs and multiply by one hundred. Normally the items belonging to the equity groups are used in the numerator and in the denominator the so-called equity masses. The formula could be as follows:

This technique allows us to verify the economic-financial situation and the income statement and to make comparisons with other companies in the same economic sector. On the one hand, it informs us about the weight of each part and on the other hand, it allows us to check whether we are within the average of the sector (which is desirable) or not.

What does horizontal and vertical mean?

The vertical is perpendicular to the horizontal which is in turn parallel to the earth’s horizon. Simply a vertical is from top to bottom or the reverse and horizontal is from right to left or the reverse.

What are the methods of vertical analysis?

Vertical methods are those performed on figures of a particular period, interrelating the different items of the financial statements, also known as financial ratios; these methods include: Use of percentages. Simple ratios. Standard ratios.

How is the vertical analysis performed on the balance sheet?

The vertical analysis of the Balance Sheet consists of the comparison of an asset item with the total sum of the balance sheet, and/or with the sum of the liability items or total equity of the balance sheet, and/or with the sum of the same group of liabilities and equity.

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Interpretation of vertical and horizontal analysis: examples

Vertical analysis by definition is one of the instruments or tools used in the financial analysis of a company. Let us remember that financial analysis requires different elements and information to carry out an effective study of the company’s financial situation, among which the information obtained from the financial statements such as the balance sheet, the income statement, the statement of changes in financial position and the cash flow statement stand out. Precisely one of the tools or instruments used for the analysis of the information obtained from these financial statements is the vertical or static analysis.

It is a static analysis because it studies the financial situation at a given moment, without taking into account changes that have occurred over time, such as the acquisition of machinery or loans, etc. The method consists of taking a single financial statement and relating each of its accounts to a given total within the same statement, although each of its subaccounts can also be related.