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

Vertical analysis is also called ______ analysis.

trend

common-size

horizontal

ratio

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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 in a financial statement is expressed as a percentage of a base amount. For example, in an income statement, each line item is expressed as a percentage of total sales.

Recognize the alternative name for vertical analysis: Vertical analysis is also referred to as 'common-size analysis' because it standardizes financial statements, making it easier to compare companies of different sizes or analyze trends over time.

Differentiate vertical analysis from other types of analysis: Horizontal analysis compares financial data across multiple periods, focusing on changes over time. Ratio analysis involves calculating financial ratios to assess a company's performance. Vertical analysis, on the other hand, focuses on the proportional relationship of items within a single financial statement.

Identify the correct answer: Based on the explanation above, the correct answer to the question is 'common-size analysis,' as it aligns with the definition and purpose of vertical analysis.

Apply the concept: To perform vertical analysis, divide each line item in the financial statement by the base amount (e.g., total sales for the income statement or total assets for the balance sheet) and express the result as a percentage. This helps in understanding the relative significance of each item.