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1. Instructor: Sahar Idrees
BS 8TH
Department of Commerce
GCWUF
Financial
Appraisal

2. Vertical
Analysis

3. Vertical Analysis
▶ Verticalanalysisconcentratesontherelationshipsbetweenvariousfinancial
itemsonafinancialstatement
▶ T
oshowthisrelationshipeachitemonthestatementis expressedasa
percentageofabaseitemthatalsoappearsonthestatement.Onthe
balancesheet,eachitemis expressedasapercentageoftotalassets.On
theincomestatement,eachitemis statedasapercentageofsales

4. Purpose of Vertical Analysis
▶ T
ogaininsightinto therelative importanceormagnitudeofvarious
itemsonthefinancial statements
▶ Verticalanalysisis applicableforinternalperformancereviewas
wellasforcomparisontopeersandbench-marking
▶ Comparisonsallows managementandaccountingstaffatthe
companytoisolatethereasonsandtakeactiontofix theproblem

5. Balance
Sheet
These results
reinforce the earlier
observations that
Quality is choosing
to finance its growth
through retention of
earnings rather than
through issuing
additional debt.
Vertical Analysis
Illustration 14-8

6. Quality appears
to be a profitable
enterprise that is
becoming even
more successful.
Vertical Analysis
Income
Statement
Illustration 14-9

7. Enables a comparison of companies of different sizes.
V
erticalAnalysis
J.C. Penney earned net income more than 4,208 times larger than Quality’s, J.C.
Penney’s net income as a percent of each sales dollar (5.6%) is only 4% of
Quality’s (12.6%).

8. Difference between Vertical and
Horizontal analysis
▶ Under horizontal analysis an analyst compares the financial statement of
the companyfor twomoreaccounting periods, it canbeusedon anyitem
inthefinancial statementcompany
▶ Verticalanalysisis donetoreviewandanalysisthefinancialstatements
forayearonlyandthereforeit is alsocalled staticanalysis. Underthis
methodeachentryfor assets, liabilities andequitiesinabalancesheet is
representedasapercentageof thetotal account