Vertical analysis is one of the methods of financial analysis. The technology of vertical analysis is that each item of the analyzed financial report (for example, the balance sheet) is expressed as a percentage of a certain basic item (baseline indicator). Financial analysis is an effective way to study the state of the company and its financial and economic activities.
It is necessary
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Instructions
Step 1
Determine the basic item of the analyzed financial statement. When analyzing the balance sheet, the value of the balance sheet currency acts as a basic indicator, the profit and loss statement is the amount of proceeds received, the cash flow statement is the amount of cash growth for the period.
Step 2
Express the items in the financial statement as a percentage of the baseline. To do this, the value of each item must be divided by the value of the base one and multiplied by 100. The value of the base article will be equal to 100%.
Step 3
Next to the absolute value of each line in the report, write the percentage of the baseline value. Thus, you will get the vertical structure of the analyzed financial statement.
Step 4
Depending on the goals of vertical analysis, you might, for example, compare the resulting financial statement structure with industry averages to determine the company's position in the market. Or, after analyzing the specific weight of each article, draw conclusions about the presence of certain problems and advantages in the company.
