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Write the difference between horizontal and vertical analysis of financial statements.
The major differences between horizontal analysis and vertical analysis of financial statements are as follows −
Horizontal analysis
Its main aim is to compare line items to calculate the changeover the time.
In this, information is compared line by line to make decisions.
It is useful when financial results of current/targeted years are compared with previous financial years.
It states growth/decline of an item.
It tells about changes in items over the time.
It is used in intra comparison.
It is used in income statements, balance sheets, retained earnings statements.
It includes long term planning.
Vertical analysis
Its main purpose is to compare change in percentages.
In this, each line item is compared with another item in terms of percentages to make decisions.
It is useful when the results are compared with competitors.
It states forecasting and determining the relative proportion of an item.
It tells about proportion of items to common items in a single year.
It is used in both infra and inter comparisons.
It is used in income tax, sales figures and operating costs.
It includes short term planning.
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