What is Horizontal Analysis?

Financial Data for different accounting period can be compared by using this technique. A particular year is taken as a base and the financial information of different years is compared. Different parameters are compared for evaluation. This technique is useful for analyzing the trends in organizations, industries etc.

Horizontal Analysis
120 100 80 60 40 20 0 2002 2003 2004 Operating Expense Operating Profit Non Operating Income Sales Sales Return Cost of Goods Sold Gross Profit

Vertical analysis :
The technique is used for intra firm comparison. Unlike trend analysis nothing is taken as base. The financial data is compared in absolute figure. This comparison is useful for internal purpose mainly for the purpose of decision making.

Vertical analysis:
160 140 120 100 80 60 40 20 0 -20 -40
SALES Sales return cost of goods sold Gross profit operating exp

Div: A

Div: B

Div: C

operating profit

What is Common Size Analysis?

If the size of two companies is different (in terms of turnover), then the financial Data can be converted into common size and comparison is done. While analyzing income statement sales figure is taken as base and all the other expenses are expressed as a %age of sales. In balance sheet analysis total funds employed in the business is taken as the base.

Common size analysis:

80% 70% 60% 50% 40% 30% 20% 10% 0% co.A Co.B Cost of goods sold Gross profit EBIT Interest PAT

Balance Sheet Analysis

70% 60% 50% 40% 30% 20% 10% 0% Co.A Co.B Shareholders Fund Loan Funds

Common Size Analysis of B.S.

80 70 60 Fixed Assets 50 40 30 20 10 0 Co.A Co.B NET Current Assets Investments