Distinguish between Vertical and Horizontal Analysis of financial data.

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Solution

Basis of Difference

Horizontal Analysis

Vertical Analysis

Meaning

It refers to the comparison of an item of the financial statement of one period or periods to its corresponding item of the base accounting period.

It refers to the comparison of itemitems of the financial statement to the common item of the same accounting period.

Purpose

Its purpose is to determine the change in an item during an accounting period. The change in the item is expressed either in absolute figures or in percentage or in both terms.

Its purpose is to determine the proportion of item/items to the common item of the same accounting period. The change in the item is expressed either in ratio or in percentage terms.

Usefulness

It indicates growth or decline of the item.

It helps in predicting and determining the future relative proportion of an item to the common item.

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Similar questions

Q. Distinguish between Vertical and Horizontal Analysis of financial data.

Q. Give any two differences between horizontal analysis and vertical analysis of financial statements.

Which of the following statements are false?
A) When all the figures in a balance sheet are stated as percentage of the total, it is termed as horizontal analysis.
B) When financial statements of several years are analyzed, it is termed as vertical analysis.
C) Vertical Analysis is also termed as dynamic analysis.

Q. Describe the different techniques of financial analysis and explain the limitations of financial analysis.

State which of them are true?
A) When ratios of previous years are compared with current years, they are called trend ratios.
B) Trend percentages and trend ratios are used in static analysis.
C) Reliability of financial analysis depends upon the reliability of financial data.

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Basis of Difference	Horizontal Analysis	Vertical Analysis
Meaning	It refers to the comparison of an item of the financial statement of one period or periods to its corresponding item of the base accounting period.	It refers to the comparison of itemitems of the financial statement to the common item of the same accounting period.
Purpose	Its purpose is to determine the change in an item during an accounting period. The change in the item is expressed either in absolute figures or in percentage or in both terms.	Its purpose is to determine the proportion of item/items to the common item of the same accounting period. The change in the item is expressed either in ratio or in percentage terms.
Usefulness	It indicates growth or decline of the item.	It helps in predicting and determining the future relative proportion of an item to the common item.