Vertical Analysis

AAA

DEFINITION of 'Vertical Analysis'

A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of vertical analysis is that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy to see relative annual changes within one business.

INVESTOPEDIA EXPLAINS 'Vertical Analysis'

For example, suppose XYZ Corp. has three assets: cash and cash equivalents (worth $3 million), inventory (worth $8 million), and property (worth $9 million). If vertical analysis is used, the asset column will look like:

Cash and cash equivalents: 15%
Inventory: 40%
Property: 45%

This method of analysis contrasts with horizontal analysis, which uses one year's worth of entries as a baseline while every other year represents differences in terms of changes to that baseline.

RELATED TERMS
  1. Asset

    1. A resource with economic value that an individual, corporation ...
  2. Fundamental Analysis

    A method of evaluating a security that entails attempting to ...
  3. Liability

    A company's legal debts or obligations that arise during the ...
  4. Consolidated Financial Statements

    The combined financial statements of a parent company and its ...
  5. Cluster Analysis

    An investment approach that places securities into groups based ...
  6. Balance Sheet

    A financial statement that summarizes a company's assets, liabilities ...
Related Articles
  1. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  2. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  3. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  4. Fundamental Analysis

    How should a company budget for capital expenditures?

    Learn the difference between capital expenditures and operational expenses, and discover the importance of budgeting for capital expenditures.
  5. Fundamental Analysis

    What is accrual accounting in Oracle Apps?

    Learn more about Oracle Applications, an enterprise software system that enables businesses to streamline information systems – including accrual accounting.
  6. Fundamental Analysis

    Why do companies publish P&L statements?

    Understand the basics of the profit and loss statement, including why it is published and how it is used to assess financial stability.
  7. Investing Basics

    What is the first day of the quarter?

    Learn when the first day of the quarter is. Explore why investors and analysts prefer to compare results year-over-year due to seasonality.
  8. Investing Basics

    What is the difference between a quarter and a year in finance?

    Examine the difference between a fiscal quarter and a fiscal year. Learn why investors examine both quarterly and annual growth rates.
  9. Fundamental Analysis

    What is the first day of the first quarter?

    The first day of companies' fiscal years varies based on industry cycles. The timing is especially important because annual reports can have unexpected effects.
  10. Fundamental Analysis

    What is the first day of the second quarter?

    Learn about the fiscal year of different companies and when the second quarter begins. Explore why analysts often prefer to compare results year-over-year.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center