Accounting and Finance Foundations

Unit 11

Accounting and Finance Foundations Unit 11: Financial Analysis 825

Financial Analysis

Chapter 23

Vertical Analysis

Vertical analysis: A percentage analysis may also be used to show the relationship of each component

to the total within a single statement. The most common approach to vertical analysis is within a financial

statement for a single period of time. However, vertical analysis can also be used for timeline analysis,

which involves examining relative changes in certain accounts over time.

ABC Company

Balance Sheet

December 31,20XX

Assets Amount Percent

Current assets $550,000 48.30%

Long-term investment 95,000 8.3%

Property, plant, and equipment 444,500 39.0%

Intangible assets 50,000 4.4%

Total assets 1,139,500 100%

Liabilities

Current liabilities 210,000 18.40%

Long-term liabilities 100,000 8.8%

Total liabilities 310,000 27.20%

Owner’s Equity

Preferred stock 150,000 13.20%

Common stock 500,000 43.9%

Retained earnings 179,500 15.7%

Total owner’s equity 829,500 72.8%

Total liabilities and owner’s equity 1,139,500 100%

For example, to determine current assets as a percentage of total assets:

Current Assets / Total Assets =

$550,000 / $1,139,500 = 48.3%

This figure means that 48.3% of the company’s assets were current.

Student Guide

Lesson 23.2