Question

What is the difference between vertical and horizontal analysis? Please explain.

Answer 1

Horizontal analysis is the comparative evaluation of the financial statement for two or more period, to calculate the absolute and relative variances for every line of item.Vertical analysis is proportional evaluation of the financial statement wherein each item on the statement is expressed as a percentage of the total, in the respective section.Horizontal represents the growth or decline of an item.

Horizontal helps Ascertaining the trend and changes in an item over time whereas Vertical aims at ascertaining the proportion of items to the common item of the single accounting year.Horizontal expresses Items from past financial statement are restated to a percentage of amount from base year but in vertical Each item of financial statement is denoted as a percentage of another item.