Write the difference between horizontal and vertical analysis of financial statements.

Banking & FinanceManagementCompanies/Organisations

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.

raja
Published on 25-Jul-2020 07:08:45
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