What Is the Difference Between Horizontal and Vertical Analysis?
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.
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.
