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What is the difference between horizontal and vertical analysis?

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Quick Answer

Horizontal analysis makes comparisons of numbers or amounts in time while vertical analysis involves displaying the numbers as percentages of a total in order to compare them. Both are useful financial analysis techniques that calculate relationships between figures in balance sheets and income statements.

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What is the difference between horizontal and vertical analysis?
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Full Answer

Horizontal analysis, or trend analysis, shows period-to-period changes in corresponding amounts on at least two comparable financial statements. It is useful in balance sheets, income statements and retained earning statements.

Vertical analysis is also called common-size analysis. It shows each amount as a comparable percentage of the base figure, which is usually the total of the assets or liabilities. Vertical analysis is useful in analyzing sales figures, operating costs and income tax.

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