Horizontal and Vertical Analysis | Accounting

Horizontal analysis is also known as Trend Analysis refers to studying the behavior of individual financial statement items over several accounting periods. The Vertical Analysis concentrates on the relationships between various financial items on a financial statement. Copy the link given below and paste it in new browser window to get more information on Horizontal and Vertical Analysis:- http://www.transtutors.com/homework-help/accounting/horizontal-and-vertical-analysis.aspx

1. Horizontal and Vertical Analysis

2. Financial Statement Analysis Financial statement analysis (or financial analysis) is the process of reviewing and analysing a company's financial statements to make better economic decisions Tools of financial statement analysis Horizontal analysis Vertical analysis Ratio analysis Graphical analysis Regression analysis

3. Horizontal Analysis Horizontal analysis also known as trend analysis is an analysis of the year-to year change in each financial statement item Horizontal analysis (or trend analysis) refers to studying the behaviour of individual financial statement items over several accounting periods

4. Purpose of Horizontal Analysis The purpose of horizontal analysis is to determine how each item changed, why it changed, and whether the change is favourable or unfavourable It’s a way for analysts to compare accounts or performance metrics over time to see if the company is improving or declining

5. Vertical Analysis Vertical analysis concentrates on the relationships between various financial items on a financial statement To show this relationship each item on the statement is expressed as a percentage of a base item that also appears on the statement. On the balance sheet, each item is expressed as a percentage of total assets. On the income statement, each item is stated as a percentage of sales

6. Purpose of Vertical Analysis To gain insight into the relative importance or magnitude of various items on the financial statements Vertical analysis is applicable for internal performance review as well as for comparison to peers and bench-marking Comparisons allows management and accounting staff at the company to isolate the reasons and take action to fix the problem

7. Difference between Vertical and Horizontal analysis Under horizontal analysis an analyst compares the financial statement of the company for two more accounting periods, it can be used on any item in the financial statement company Vertical analysis is done to review and analysis the financial statements for a year only and therefore it is also called static analysis. Under this method each entry for assets, liabilities and equities in a balance sheet is represented as a percentage of the total account

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