Question

How would you do a horizontal analysis, vertical analysis and ratio analysis for a company?

Answer 1

Vertical analysis refers to reporting of items of financial statement on the basis of percentage of another comparitive amount. For example debt turnover ratio, inventory ratios etc where debts or inventory is compared with the total turnover as a percentage of the turnover. In case of an income statement, a vertical analysis statement shall show the income as a percentage of sales.

In case of Horizontal analysis compares the current year financial statement amounts with the past year. It is used to understand the performance of the organization in comparision with the previous year. Cash balance of 2018 compared with the cash balance of 2017, similarly the profits , turnover etc when compared with the past figures gives an idea about the performance of the organization and provides vital data for the stakeholders to make decisions.