Definition of Vertical analysis:
Vertical analysis makes it much easier to compare the financial statements of one company with another, and across industries. This is because one can see the relative proportions of account balances. It also makes it easier to compare previous periods for time series analysis, in which quarterly and annual figures are compared over a number of years, in order to gain a picture of whether performance metrics are improving or deteriorating.
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. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows.
Technique for identifying relationship between items in the same financial statement by expressing all amounts as the percentage of the total amount taken as 100. In a balance sheet, for example, cash and other assets are shown as a percentage of the total assets and, in an income statement, each expense is shown as a percentage of the sales revenue. Financial statements using this technique are called common size financial statements. See also horizontal analysis.
How to use Vertical analysis in a sentence?
- Vertical analysis can become a more potent tool when used in conjunction with horizontal analysis, which considers the finances of a certain period of time.
- Our vertical analysis was in and when I looked at it I had no idea what it meant and what I was to do with it.
- Vertical analysis makes it easier to understand the correlation between single items on a balance sheet and the bottom line, expressed in a percentage.
- The vertical analysis allowed for a more homogeneous and easy to read version of the financial statements which was a great relief for the reader.
- You may want to try and do a vertical analysis to figure out if there are new ways to progress your business.
Meaning of Vertical analysis & Vertical analysis Definition