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Horizontal Analysis by E.M. Leya5/22/2023 ![]() You conduct vertical analysis on a balance sheet to determine trends and identify potential problems. But the balance sheet provides you with financial and accounting data at a specific moment. The income statement and cash flow statement provide you with accounting data over a defined period. ![]() ![]() The balance sheet provides you and your co-owners, lenders and management with essential information about your company’s financial position. You can see how much debt your company holds in proportion to its assets and how short-term debt directly compares to short-term assets. For example, if total assets equal $500,000 and receivables are $75,000, receivables are 15 percent of total assets. When you use total assets in the denominator, look at each balance sheet item as a percentage of total assets. ![]() Under vertical analysis (or common-size analysis), one lists each line item in the financial statement as a percentage of the base figure. The percentages on a common-size balance sheet allow you to compare a small company’s balance sheets to that of a very large company’s balance sheet. ![]() The vertical analysis of the balance sheet will result in a common-size balance sheet. ![]()
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