Differences between Horizontal and Vertical Analysis

Though both horizontal and vertical analysis are done by the companies for the purpose of analysis of financial statements, and both are useful in analysis of trends for the financial statements of the company, however they both are different in following ways.

Under horizontal analysis an analyst compares the financial statement of the company for two more accounting periods, it can be used on any item in the financial statement company so if company wants to see whether its sales for current year is good or not it will compare the sales for the year 2010 with sales for year 2009 or for previous years. It is a time series analysis in the sense that it shows comparison of financial data for several years against a chosen base year. It is also called dynamic analysis of the financial statements.

Vertical analysis is done to review and analysis the financial statements for a year only and therefore it is also called static analysis. Under this method each entry for assets, liabilities and equities in a balance sheet is represented as a percentage of the total account. So if in asset side of balance sheet cash is $200, building is $400 and machinery is $600 and total of balance sheet is $1000, then cash will be 20 percent of total of balance sheet building will be 40 percent and machinery will be 60 percent. One of the advantages of using this method is that one gets an idea of composition of the balance sheet and then it can compared with previous years to see the relative annual changes in company’s balance sheet.

0 comments… add one

Leave a Comment

Related pages

state and explain the law of diminishing marginal utilitydirect and indirect currency quotesexample of complementary goodsadvantages and disadvantages of oligopoly market structureexample of a conglomeratedefinition of accrued incomebank withdrawal slipinelastic examplesfull form of imps in bankingunearned revenue in accountingadvantages and disadvantages of global warmingexamples of explicit costmeaning of forfeitingventure capital disadvantagesunsystematic definitionfeatures of perfectly competitive marketconglomerate strategybenefits of autocracysubstitute goods economicswhat are the advantages and disadvantages of a mixed economyconglomerate examplefor a monopolistic competitormerger disadvantagesjournal entry for capital accountdisadvantages of perfect competition marketwhat is vertical analysis of financial statementsaccounting concept going concerndifference between substitute and complementary goodsadvantages and disadvantages of public corporationdisadvantages of specialisationdisadvantages of mergers and acquisitions pdfwhat are some disadvantages of centrally planned economiesproduct bundle pricing strategydisadvantages of fifodifference between systematic risk and unsystematic riskis salaries payable a current liabilityadvantages and disadvantages of housing financeexample of debit notehorizontal & vertical analysisdisadvantages of fifodisadvantages of process costingfund flow analysis in financial managementwhat are the advantages and disadvantages of certificate of depositoligopoly characteristicsdurable or nondurable goodsadvantage of payback periodforex reserves by countrydisadvantage of mixed economyautocratic leadership theoryvertical horizontal and conglomerate mergersdisadvantages of competitive pricingtariffs vs quotasdisadvantages of a command economyauthoritarian leadership advantagesjournal entry for outstanding salarywholesale funding vs retail fundingdisadvantages of marketing conceptcapital receipts exampleswhat is the disadvantage of globalizationjournal entry for prepaymentmeaning of capital rationingadvantages disadvantages diversification strategysubvention meansadvantages of discounted cash flow methodexample of elastic goodswhat is an autocratic leadership styleconglomerate merger meaningfdi and fii meaningsubvention meaningprinciple of conservatism in accountingcost of deflationadvantages and disadvantages of penetration pricingcapital account convertibility indiatraditional economy advantages and disadvantagesdisadvantages of hedge fundsaum full form