Question

I was just wondering if companies do both horizontal and vertical analysis of the company?. Do companies do one or the other? Or does it depend on the company?  

Answer 1

It depends on the company because a company can use horizontal analysis or can use vertical analysis as per their requirement. As we know that vertical analysis helps in knowing the percentage of each item of financial statements in compare to total value. In other words we can say that with the help of vetical analysis a company can know the position of each items of the financial statement, which will be helpful in analysing each items of the financial statement in compare to total values.

On other hand, horizontal analysis helps in knowing the change between two years in total or in percentage form hence it will show relevant increase or decrease in compare to base year. That is why horizontal analysis is also very useful tool in financial analysis.

That is why it is clear that a company can use horizontal analysis or vertical analysis or both as per its’ requirement.