Vertical and Horizontal Analysis

What is the difference between vertical analysis and horizontal analysis? Vertical analysis reports each amount on a financial statement as a percentage of another item. For example, the vertical analysis of the
balance sheet means every amount on the balance sheet is restated to be a percentage of total assets. If inventory is $100,000 and total assets are $400,000 then inventory is presented as 25 ($100,000 divided by $400,000). If cash is $8,000 then it will be presented as 2 ($8,000 divided by $400,000). The total of the assets will now add up to 100.

If the accounts payable are $88,000 they will be presented as 22 ($88,000 divided by $400,000). If owner’s equity is $240,000 it will be presented as 60 ($240,000 divided by $400,000). The restated amounts from the vertical analysis of the balance sheet will be presented as a common-size balance sheet. A commonsize balance sheet allows you to compare your company’s balance sheet to another company’s balance sheet or to the average for its industry. Vertical analysis of an income statement results in every income statement amount being presented as a percentage of sales.

Get quality help now
Dr. Karlyna PhD
Verified writer

Proficient in: Finance

4.7 (235)

“ Amazing writer! I am really satisfied with her work. An excellent price as well. ”

+84 relevant experts are online
Hire writer

If sales were $1,000,000 they would be restated to be 100 ($1,000,000 divided by $1,000,000). If the cost of goods sold is $780,000 it will be presented as 78 ($780,000 divided by sales of $1,000,000). If interest expense is $50,000 it will be presented as 5 ($50,000 divided by $1,000,000).

The restated amounts are known as a common-size income statement. A common-size income statement allows you to compare your company’s income statement to another company’s or to the industry average. Horizontal analysis looks at amounts on the financial statements over the past years.

Get to Know The Price Estimate For Your Paper
Number of pages
Email Invalid email

By clicking “Check Writers’ Offers”, you agree to our terms of service and privacy policy. We’ll occasionally send you promo and account related email

"You must agree to out terms of services and privacy policy"
Check writers' offers

You won’t be charged yet!

For example, the amount of cash reported on the balance sheet at December 31 of 2012, 2011, 2010, 2009, and 2008 will be expressed as a percentage of the December 31, 2008 amount. Instead of dollar amounts you might see 134, 125, 110, 103, and 100. This shows that the amount of cash at the end of 2012 is 134% of the amount it was at the end of 2008. The same analysis will be done for each item on the balance sheet and for each item on the income statement. This allows you to see how each item has changed in relationship to the changes in other items. Horizontal analysis is also referred to as trend analysis. Vertical analysis, horizontal analysis and financial ratios are part of financial statement analysis. Learn more about Financial Ratios. Take our Financial Ratios Exam.

Join our Newsletter

Receive our free 19-page accounting cheat sheet. Plus, stay up to date with
the latest questions answered.

Enter your email address:
email address Subscribe

New Seminar Videos

27 HD videos totalling 4+ hours
Bookkeeping Basics Seminar Understanding Financial Statements Seminar

Related Questions

Most popular Q&A from 2010 What is credit analysis and financial analysis? What is variance analysis? What is variance analysis? What are the methods for separating mixed costs into fixed and variable? These videos are only available in our new AccountingCoach Pro members area.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

Learn more about Accounting Coach Pro

Accounting Q&A by Topic
Over 800 questions have been answered in the following categories: Accounting Basics Accounting Careers Chart of Accounts

Accounting Equation Accounting Principles Accounts Payable

What is the difference between vertical analysis and horizontal analysis? | Q&A Cost and Managerial Accounting Debits and Credits Depreciation Financial Accounting Financial Ratios Improving Profits Income Statement Inventory and Cost of Goods Sold Lower of Cost or Market Manufacturing Overhead Nonmanufacturing Overhead Payroll Accounting Present Value of an Ordinary Annuity Present Value of a Single Amount Standard Costing Stockholders’ Equity

Accounts Receivable and Bad Debts Expense Activity Based Costing Adjusting Entries Balance Sheet Bank Reconciliation Bonds Payable Bookkeeping Break-even Point Business Investments Cash Flow Statement Calculations

About | Advertise | Affiliates | Copyright | Contact | Disclaimer | Helpful Links | Privacy | Site Map | Testimonials Copyright © 2004 – 2013 AccountingCoach, LLC. All rights reserved. AccountingCoach® is a registered trademark.

Cite this page

Vertical and Horizontal Analysis. (2016, Mar 22). Retrieved from

👋 Hi! I’m your smart assistant Amy!

Don’t know where to start? Type your requirements and I’ll connect you to an academic expert within 3 minutes.

get help with your assignment