How do you use vertical analysis?

You can use vertical analysis on an income statement, balance sheet or cash flow statement to understand the proportions of each line item to the whole, understand key trends that occur over time, compare multiple companies of varying sizes or compare a company's financial statements to averages within their industry.

What is a base figure in vertical analysis?

In vertical analysis, one line on the financial statement shows a base figure of 100%, and the other lines represent a percentage of the base figure. For example, when you perform vertical analysis on a balance sheet, the base figure is the total assets or liabilities. On an income statement, the base figure is the net sales.

What is horizontal analysis?

In horizontal analysis, you can compare figures from one time period to figures from a base time period to get an overview of changes over time. Analyzing financial trends over periods or years can help you track how a company's financial state has changed, find patterns in its data and spot potential problems and opportunities.

What type of analysis is used in ratio analysis?

Vertical analysis is used in order to gain a picture of whether performance metrics are improving or deteriorating. Another form of financial statement analysis used in ratio analysis is horizontal analysis or trend analysis.