vertical financial statement analysis example template

Vertical Financial Statement Analysis Example

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Welcome to, your go-to resource for all your business document needs. Today, we'll be discussing the topic of vertical financial statement analysis and providing you with an example to showcase its significance. If you're looking to gain insights into a company's financial health, analyzing their financial statements vertically is a powerful technique.

What is Vertical Financial Statement Analysis?

Vertical financial statement analysis is a method used to evaluate a company's financial performance and stability by examining its financial statements. Unlike horizontal analysis, which compares line items across multiple periods, vertical analysis focuses on the relative proportions of individual items within a single period. It involves expressing each item as a percentage of a base figure within the statement, such as total revenue or total assets.

Understanding the Example

Let's consider a fictional company, ABC Manufacturing, and its income statement. By conducting vertical analysis on this statement, we can gain valuable insights into the company's revenue sources and expense structure.

ABC Manufacturing Income Statement (Year Ended December 31, 2020)

Item Amount % of Revenue
Sales Revenue $500,000 100%
Cost of Goods Sold $250,000 50%
Gross Profit $250,000 50%
Operating Expenses $150,000 30%
Net Income $100,000 20%

In this example, we determine the percentage of each line item relative to the company's total sales revenue. It allows us to see the composition of both the cost structure and profit margins. From the information above, we can gather that ABC Manufacturing had a gross profit margin of 50%, indicating strong pricing strategies or control over production costs.

Why is Vertical Financial Statement Analysis Important?

Vertical financial statement analysis provides a clearer understanding of the composition and relationships between different items within a financial statement. By analyzing these proportions, we can identify trends, potential areas of concern, and compare companies of different sizes or industries. Key benefits of vertical analysis include:

  • Identifying cost patterns or inefficiencies.
  • Evaluating the profitability of specific revenue sources.
  • Assessing the impact of operating expenses on profitability.
  • Comparing financial statements across periods or with industry benchmarks.

Download the Vertical Financial Statement Analysis Example

To further explore vertical financial statement analysis and access a detailed example, we offer a comprehensive PDF document that can guide you through the process. Download our Vertical Financial Statement Analysis Example PDF today.

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Annabel Ayers(11/7/2023) - GBR


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