What is Vertical Analysis?
Vertical analysis is the proportional analysis of a financial statement, where each line item on the statement is listed as a percentage of another item. This means that every line item on an income statement is stated as a percentage of gross sales, while every line item on a balance sheet is stated as a percentage of total assets.
What is Horizontal Analysis?
Horizontal analysis is the comparison of historical financial information over a series of reporting periods. It is used to see if any numbers are unusually high or low in comparison to the information for bracketing periods, which may then trigger a detailed investigation of the reasons for the difference.
Comparing Vertical Analysis and Horizontal Analysis
Given these descriptions, the main difference between vertical analysis and horizontal analysis is that vertical analysis is focused on the relationships between the numbers in a single reporting period, while horizontal analysis spans multiple reporting periods.
