# Horizontal Analysis : Horizontal And Vertical Analysis

1702 WordsMar 27, 20177 Pages
Horizontal and Vertical Analysis Horizontal analysis is the comparison of financial information in an organization’s statements over a certain period of time, while vertical analysis compares the percentage of each item in accounts, assets, and debt financing on a balance sheet or income statement. The horizontal analysis in the balance sheet reports that the amount and percentages from 2015 to 2016 increased in all but two assets. The cash and cash equivalents increased by 39%, total currents assets increased by \$789.50 or 20%, and property, plant and equipment, net increased from \$4,088.30 to \$4,533.80, an increment of 11%. This indicates that Starbucks improved its ability to collect from its customers, while also expanding across the…show more content…
Earnings before income taxes also increased from \$3,903.00 to \$4,198.60, an increase of 8%. Both net earnings including noncontrolling interests and net earning attributable to Starbucks saw a small percentage increase at 2%. Examining the vertical analysis of the income statement, one can see that all three net revenue categories – company-operated stores (79%), licensed stores (10%), and CPG (11%) – have the same percentage from both years. Similar to net revenues, the 2016 expenses and net earnings have very similar percentages to those of 2015. A financial analyst looking to investigate Starbucks’ statement in more detail, he or she would definitely have to keep an eye on the deferred income taxes, net and the shareholders’ equity section in the balance sheet. If the analyst wanted to investigate the income statement, one could suggest the net earnings and expenses as sections to study. Ratio Analysis Liquidity Ratios Current Ratio is the relationship between a company’s current assets and current liabilities. This form of liquidity ratio also shows if the company can pay its current liabilities. A company’s current ratio can be formulated by dividing the current assets by the current liabilities. In 2016, Starbucks had a ratio of 1.05, which shows that the company has 5% cash and assets that could cover all current liabilities, thus it should not have any problems paying its current liabilities.