Question

How to (example)

Compute percentage change and dollar change in horizontal & vertical analysis

Answer 1

In horizaontal analysis, the financial statements of two consecutive years are compared. For comparison purposes, dollar change and percentage change in the amount of each item in the financial statement is computed Whereas in vertical analysis, all the items amount is calculated as a percentage of total sales in income statement and as a percentage of total assets in balance sheet. (By assuming sales and total assets equal to 100%).

For Example:-

Extract of Balance Sheet as on Dec. 31, 2017 (Amounts in million $)

Assets	2017	2016
Cash	550	500
Accounts Receivable	1,500	1,200

From the above balance sheet, dollar change and percentage change in cash is calculated as follows:-

Dollar change in Cash = 2017 Cash Balance - 2016 Cash Balance

= $550 million - $500 million = $50 million

Percentage change in Cash = Dollar Change in Cash/2016 Cash Balance

= $50 million/$500 million = 10%