Which analysis expresses line items as a percentage of a base figure to compare structure across firms or periods?

Which analysis expresses line items as a percentage of a base figure to compare structure across firms or periods?

• A. Vertical analysis
• B. Horizontal analysis
• C. Ratio analysis
• D. Financial Statement Analysis

Answer: (A)

Expressing line items as a percentage of a base figure to compare structure across firms or periods is vertical analysis. This approach standardizes each item by a common base on the same financial statement, so you can compare how the components make up the whole regardless of company size. On the income statement, each item is shown as a percentage of net sales, which reveals cost structure and operating margins. On the balance sheet, each item is shown as a percentage of total assets, highlighting the composition of assets, liabilities, and equity. This differs from horizontal analysis, which looks at changes over time, and from ratio analysis, which examines relationships between two specific items.

Expressing line items as a percentage of a base figure to compare structure across firms or periods is vertical analysis. This approach standardizes each item by a common base on the same financial statement, so you can compare how the components make up the whole regardless of company size. On the income statement, each item is shown as a percentage of net sales, which reveals cost structure and operating margins. On the balance sheet, each item is shown as a percentage of total assets, highlighting the composition of assets, liabilities, and equity. This differs from horizontal analysis, which looks at changes over time, and from ratio analysis, which examines relationships between two specific items.