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Answer to Question #5647 in Finance for LaMarcus Streeter

Question #5647
Vertical analysis is a technique which expresses each item within a financial statement

a.in dollars and cents.
b.in terms of a percentage of the item in the previous year.
c.in terms of a percent of a base amount.
d.starting with the highest value down to the lowest value.
Expert's answer
Vertical analysis is a technique which expresses each item within a financial statement in terms of a
percent of a base amount.
Vertical analysis is a method of financial statement analysis when each entry for each of the three major
categories of accounts (assets, liabilities and equities) in a balance sheet is
represented as a proportion of the total account (in percents). It makes it easy
to see relative annual changes within one business and compare the balance
sheets of businesses of all sizes. It looks like (for example - % from the total
worth):
Cash and cash equivalents: 17%
Inventory: 40%
Property: 43%
This method of analysis contrasts with horizontal analysis, which uses one year's worth of entries as a
baseline while every other year represents differences in terms of changes to
that baseline.

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