Question

Distinguish between Vertical and Horizontal Analysis of financial data.

Answer 1

$\begin{array}{ccc}\text{Basis of Difference}& \text{Horizontal Analysis}& \text{Vertical Analysis}\\ \text{Meaning/Nature}& \text{It refers to the comparison of an}& \text{It refers to the comparison of items}\\ & \text{item of the financial statement}& \text{of the financial statement to the}\\ & \text{of one period or period to its}& \text{common item of the same}\\ & \text{corresponding item of the base}& \text{accounting period.}\\ & \text{accouting period.}& \\ \text{Expression of}& \text{In Horizontal Analysis, change}& \text{In Vertical Analysis, change in the}\\ \text{change}& \text{in the item is expressed}& \text{item is expressed either in ratio}\\ & \text{absolute figures or in}& \text{or in percentage terms.}\\ & \text{percentage or in both terms.}& \\ \text{Benefits}& \text{The benefit of Horizontal}& \text{Vertical Analysis helps in predicting}\\ & \text{analysis is that it indicates}& \text{and determining the future relative}\\ & \text{growth or decline of the item.}& \text{proportion of an item to the}\\ & & \text{common item.}\\ \text{Purpose}& \text{Its purpose is to determine the}& \text{Its purpose is to determine the}\\ & \text{change in an item during an}& \text{proportion of item/items to the}\\ & \text{accounting period.}& \text{common item of the same accounting period.}\end{array}$