Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Vertical Analysis

Financial Accounting

14. Financial Statement Analysis

Vertical Analysis

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Multiple Choice

Which of the following is an example of vertical analysis?

Comparing net income from 2022 to net income from 2021

Comparing the current ratio of two different companies

Expressing each expense item on the income statement as a percentage of total sales

Calculating the trend percentage of total assets over five years

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Verified step by step guidance

Understand the concept of vertical analysis: Vertical analysis is a method of financial statement analysis where each item on a financial statement is expressed as a percentage of a base amount. For example, on the income statement, each expense item is expressed as a percentage of total sales.

Identify the key characteristic of vertical analysis: It focuses on analyzing the relationship of individual components within a single financial statement, rather than comparing across different periods or entities.

Review the options provided in the problem: Evaluate each option to determine whether it aligns with the definition of vertical analysis. For example, comparing net income across years or calculating trend percentages over time are examples of horizontal analysis, not vertical analysis.

Focus on the correct option: Expressing each expense item on the income statement as a percentage of total sales is an example of vertical analysis because it involves analyzing the proportion of each expense relative to total sales within a single period.

Conclude the reasoning: Vertical analysis helps in understanding the composition of financial statements and identifying areas where expenses or revenues are disproportionately high relative to the base amount, such as total sales or total assets.