# What is the difference between horizontal and vertical analysis of financial statements?

### Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615

Chapter
Section

### Accounting (Text Only)

26th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781285743615
Chapter 17, Problem 1DQ
Textbook Problem
107 views

## What is the difference between horizontal and vertical analysis of financial statements?

To determine

Horizontal Analysis: Horizontal analysis is prepared to make comparison between the financial statements to determine the changes in the financial statements for the previous year to the current year. The changes of the company are measured in dollars as well as in percentage.

Formula:

Percentage Change=100×Later PeriodAmountBasePeriod AmountBase Period Amount

Vertical Analysis: Vertical analysis is prepared to analyze the relationship among various financial statements with a particular base amount. Use the following formula to calculate vertical analysis percentage:

Formula:

Vertical analysis percentage =(Specific itemBaseamount)×100

This analysis is otherwise called as common-size statement.

To explain:

The differences between horizontal and vertical analysis

### Explanation of Solution

 Basis of difference Horizontal analysis Vertical analysis Difference Horizontal analysis is prepared to make comparison between the financial statements to determine the changes in the financial statements for the previous year to the current year. Vertical analysis is prepared to analyze the relationship among various financial statements with a particular base amount. Purpose This analysis helps the user to compare line by line items and changes happened over the time. This analysis helps to make comparison of changes occurred in terms of percentage. Usefulness This analysis is used to compare the performance with previous years. This analysis is used to compare company’s performance with other companies.
Conclusion

Thus, the above are the differences between horizontal and vertical analysis.

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