Complete a vertical analysis of the following balance sheet:

Question

Balance sheet for vertical analysis comparing 20X2 and 20X1 financial data.

Accepted Answer

Alright, so let's go ahead and complete our vertical analysis of a balance sheet. Remember that on the balance sheet, our base amount is different than on the income statement. The income statement we use net sales or sales revenue, whatever our top line is. And for the balance sheet, we're going to use total assets or total liabilities and stockholders equity, right? This is our base amount right here. And it could also be this one. Notice they're the same number, right? They should be the same because assets equal liabilities plus equity. So we've got 71707, 71707. So they're gonna be the same whichever one you pick as long as you're consistent, it doesn't matter. 71707 is gonna be our denominator throughout all of these calculations. So let's go ahead and start with cash. So cash, our numerator is gonna be 26211 and we're gonna divide by our denominator which was the total assets amount, total liability stockholders equity. It's 71707, right? So notice, this denominator is gonna be consistent just like we did with the income statement with net sales. We've got a consistent denominator here for our vertical analysis. So we do that division, put it as a percentage by multiplying by a 100 and we're going to get 36.6%. Okay. So cash, what this tell us is that of our total assets, 36.6% of it is cash, right? We've got 36.6 percent of our in cash. Alright. Let's keep going here with accounts receivable and we have 15912 divided by the same denominator, right? That's the beauty of the vertical analysis is that the denominator is not gonna change. So we do that, get a percentage 22.2%. Okay? So 22.2% of our assets are accounts receivable. Let's do inventory. 6424 divided by 71707, and that gives us 9.0%. Alright. Last but not least, we've got PPE, our property plant and equipment. These are long term assets, fixed assets. 23,160 divided by the same denominator and we're gonna get notice in your calculator, you probably got something closer to 32.3, right? But remember, we've just broken down our assets. The 100% of assets that we have, we've broken it up into 4 different categories for the 4 different types of assets. Well, that should equal a 100%. And notice, if you put in 32.3 right now, we would have a rounding error and it would come out to a 100.1%. So what I'm gonna do is at this point, I'm gonna round this one to 32.2% because it's gonna keep the the totals here. If we add all 4 of these numbers, 36.6 plus 22.2 plus 9 plus 32.2, it's gonna equal a 100%. Okay? So that's one little thing with the vertical analysis is that you wanna make sure that your totals still come out to a 100%. Right? So 71707 divided by 71707 equals 100%, right? So there's our 100%. Now you could have rounded any of them. It doesn't matter which one you rounded as long as you get that total of a 100%. So that's just one thing to be a little careful for, just to make sure it comes out to a 100. Cool? Alright. Let's go ahead and do our liabilities and equity here. So remember, our base is still gonna be 71707 even though now we're technically using this 71707. Well, it's the same number. So let's do accounts payable 95 whoops, 9 562 divided by 71707, and that gives us 13.3%, Right? So how did we finance these assets? Well, 13.3% of the financing is in accounts payable, is in some short term money that we owe to suppliers and things like that. Cool? So I think you get the picture. I'll do one more here. 6117 divided by 71707, and our accrued expenses are 8.5%, right, and we'll keep going down like that. 30,000 divided by 71707, well that's going to equal 41.8%. So 41.8% of our assets are financed with long term debt. That's good information for the investors, right? There seems to be quite a good chunk of debt financing these assets. Cool. Let's keep going. Common stock, the common stock, 1,000 divided by the 71707, 1.4%. APIC, our additional paid in capital, another equity account, 19,000. So same thing, 19,000 divided by our base, we get 26.5% and retained earnings. Right? So this is the same thing as above. At this point, you wanna double check to make sure that you're gonna total a 100%. And when you do your retained earnings 6028 divided by the base of 71707, you'll probably get something, I think closer to 8.6%. I don't really remember. But whatever it is, you wanna make sure that your total is a 100%. Right? So when you total all of these numbers, you'll see that you wouldn't get a 100%. You'd be off by 0.1. So what I did is I rounded it to 8.5%. Right? It's not a big deal. We're just dealing with a very small decimal. We're just rounding here. Cool. So we get 8.5%. Let me clean that up a little bit. 8.5 percent and you'll see that our total of all of our liabilities and equity, if we add all those percentages together, they will equal a 100% and that's what we get in this last one, right? 71707 divided by 71707, that equals 100% down here. Cool? All right. Let's pause here and let's do the same thing for 20X1. Let's get a little more practice with our vertical analysis.

Struggling with Financial Accounting?

Complete a vertical analysis of the following balance sheet:

Watch next

Vertical Analysis practice set