Question

Why are horizontal and vertical analysis used to compare a company’s financial performance across time and against benchmarks

Answer 1

Answer:

What Is Vertical Analysis?

Vertical analysis is a method of financial statement analysis in which each line item is listed as a percentage of a base figure within the statement. Thus, line items on an income statement can be stated as a percentage of gross sales, while line items on a balance sheet can be stated as a percentage of total assets or liabilities, and vertical analysis of a cash flow statement shows each cash inflow or outflow as a percentage of the total cash inflows.

Explanation:

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Answer 2

Vertical analysis is wherein the "relationship" between items in the same financial statement is identified by "expressing all amounts" as a "percentage a total amt"

Horizontal analysis comprises comparison of a "financial ratio", a line item, or benchmark,  over a number of "accounting periods".

Explanation:

• Horizontal analysis is used in financial statement analysis to compare historical data like  ratios, or line items, over a "number of accounting" periods. Horizontal analysis can either use percentage comparisons or absolute comparisons. Horizontal analysis enables financial statement users to easily "spot trends" & "growth patterns".
• "Vertical analysis" is a technique of financial statement analysis wherein each "line item" is listed as a "percentage of a base figure" within the statement.  The major advantage of using this type of analysis of financial statements is that "income statements & balance sheets" of firms  of different sizes can be "compared"

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Define 'Financial Statement Analysis'. Explain the important methods ...

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