Spectacular Vertical Analysis Formula
The vertical analysis of an income statement results in every income statement amount being restated as a percent of net sales.
Vertical analysis formula. In the income statement the vertical analysis exists between the items of the income statement such as income and expenditures Gross sales and the net profit of the business. Vertical analysis is the proportional analysis of a financial statement where each line item on a financial statement is listed as a percentage of another item. The formula for vertical analysis of income statement can be derived by dividing any item in the income statement by the total sales and express it in terms of percentage.
Example of Vertical Analysis of a Balance Sheet If a companys inventory is 100000 and its total assets are 400000 the inventory will. Accounting students department managers CEOs finance students MBA students accountants and Executive MBA students. Vertical Analysis for an Income Statement When performing a Vertical Analysis of an Income Statement Net Sales usually used as the basis for which all other items are compared.
A basic vertical analysis needs an individual statement for a reporting period but comparative statements may be prepared to increase the usefulness of the analysis. Vertical Analysis Formula The following equation is used to analyze a financial statement using vertical analysis. Vertical analysis on an income statement will show the sales number sometimes listed as Revenue as 100 and every other account will show as a percentage of the total sales number.
Net Sales is divided by itself making it 100. In the balance sheet the vertical analysis is calculated as a percentage of the total assets and liabilities. Mathematically it is represented as Vertical Analysis of Income Statement Income Statement Item Total Sales 100.
All other items in the Income Statement are divided by the Net Sales. Vertical analysis formula Statement line item Total base figure X 100 Horizontal analysis formula Comparison year amount - Base year amount Base year amount X 100 However it is important to remember that you can still use vertical analysis to compare a line items percentages from one quarter or year to another. Percentage of base Amount of individual itemAmount of base item 100.