HORIZONTAL AND VERTICAL ANALYSES
Basic financial statement analysis begins with evaluating the relative size of changes
in account balances across time and the relative size of account balances within a state-
ment. These are termed horizontal and vertical analyses.Horizontal Analysis
The percentage analysis of increases and decreases in related items in comparative
financial statements is called horizontal analysis. The amount of each item on the most
recent statement is compared with the related item on one or more earlier statements. The
amount of increase or decrease in the item is listed, along with the percent of increase or
decrease. For example, cash of $150,000 on the current balance sheet may be compared
with cash of $100,000 on the balance sheet of a year earlier. The current year’s cash may
be expressed as 1.5 or 150% of the earlier amount, or as an increase of 50% or $50,000.
When horizontal analysis compares two statements, the earlier statement is used as
the base. Horizontal analysis may also compare three or more statements. In this case,
the earliest date or period may be used as the base for comparing all later dates or peri-
ods. Alternatively, each statement may be compared to the immediately preceding state-
ment. Exhibit 1 is a comparative balance sheet with horizontal analysis for two years for
Pixar.632 Chapter 14 Financial Statement Analysis
Construct and interpret
horizontal and vertical
analyses.The analysis of Pixar’s and
DreamWorks Animation’s
financial statements in this
chapter is the authors’ and is
intended for instructional
use, not for investment or
valuation purposes.1
Exhibit 1
Comparative Balance
Sheet—Horizontal
AnalysisPixar
Comparative Balance Sheets (In millions)
January 1, 2005, and January 3, 2004Increase (Decrease)
Jan. 1, 2005 Jan. 3, 2004 Amount Percent
Assets
Cash and cash equivalents $ 28.7 $ 48.3 $ (19.6) 40.6%
Investments 826.1 473.6 352.5 74.4
Accounts receivable, net 82.0 204.9 (122.9) 60.0
Prepaid expenses and other assets 2.2 1.0 1.2 120.0
Total current assets $ 939.0 $ 727.8 $ 211.2 29.0
Film inventory 140.0 107.7 32.3 30.0
Property and equipment, net 125.6 115.0 10.6 9.2
Other assets 70.4 51.5 18.9 36.7
Total assets $ 1,275.0 $ 1,002.0 $ 273.0 27.2
Liabilities
Accounts payable $ 5.4 $ 1.8 $ 3.6 200.0
Income taxes payable 14.0 37.6 (23.6) 62.8
Other accrued liabilities 27.0 13.0 14.0 107.7
Unearned revenue 8.5 9.1 (0.6) 6.6
Total liabilities $ 54.9 $ 61.5 $ (6.6) 10.7
Stockholders’ Equity
Common stock, no par value $ 687.4 $ 547.0 $ 140.4 25.7
Retained earnings 534.9 393.2 141.7 36.0
Accumulated other comprehensive
income (loss) (2.2) 0.3 (2.5) 833.3
Total shareholders’ equity $ 1,220.1 $ 940.5 $ 279.6 29.7
Total liabilities and shareholders’
equity $ 1,275.0 $ 1,002.0 $ 273.0 27.2