Anonymous
Oct 30, 2023
Make notes on vertical and horizontal relationships among parameters of financial statements?
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Oct 30, 2023
Vertical relationships among parameters of financial statements:
1. Vertical analysis: It involves expressing each line item of a financial statement as a percentage of a base figure. For example, in the income statement, each expense item is expressed as a percentage of total revenue. This helps in understanding the proportionate impact of each item on the overall financial performance.
2. Vertical common-size statements: These statements present each line item as a percentage of a common base, such as total assets in the balance sheet or total revenue in the income statement. This allows for easy comparison between different periods or companies, as it eliminates the impact of size differences.
3. Vertical trends: By comparing the percentages of line items over multiple periods, vertical analysis helps identify trends and changes in the financial performance of a company. For example, an increasing percentage of expenses in relation to revenue may indicate inefficiencies or cost control issues.
Horizontal relationships among parameters of financial statements:
1. Horizontal analysis: It involves comparing financial data over multiple periods to identify changes and trends. This analysis is done by expressing the change in line items as a percentage of the base period's value. It helps in understanding the growth or decline of various parameters over time.
2. Common-size statements: Similar to vertical common-size statements, horizontal common-size statements express each line item as a percentage of a common base. This allows for easy comparison of financial data between different periods, as it eliminates the impact of size differences.
3. Horizontal trends: By analyzing the changes in line items over time, horizontal analysis helps identify patterns and trends in a company's financial performance. For example, a consistent increase in revenue over multiple periods may indicate successful growth strategies.
Overall, both vertical and horizontal relationships among parameters of financial statements provide valuable insights into a company's financial performance, trends, and changes over time.
1. Vertical analysis: It involves expressing each line item of a financial statement as a percentage of a base figure. For example, in the income statement, each expense item is expressed as a percentage of total revenue. This helps in understanding the proportionate impact of each item on the overall financial performance.
2. Vertical common-size statements: These statements present each line item as a percentage of a common base, such as total assets in the balance sheet or total revenue in the income statement. This allows for easy comparison between different periods or companies, as it eliminates the impact of size differences.
3. Vertical trends: By comparing the percentages of line items over multiple periods, vertical analysis helps identify trends and changes in the financial performance of a company. For example, an increasing percentage of expenses in relation to revenue may indicate inefficiencies or cost control issues.
Horizontal relationships among parameters of financial statements:
1. Horizontal analysis: It involves comparing financial data over multiple periods to identify changes and trends. This analysis is done by expressing the change in line items as a percentage of the base period's value. It helps in understanding the growth or decline of various parameters over time.
2. Common-size statements: Similar to vertical common-size statements, horizontal common-size statements express each line item as a percentage of a common base. This allows for easy comparison of financial data between different periods, as it eliminates the impact of size differences.
3. Horizontal trends: By analyzing the changes in line items over time, horizontal analysis helps identify patterns and trends in a company's financial performance. For example, a consistent increase in revenue over multiple periods may indicate successful growth strategies.
Overall, both vertical and horizontal relationships among parameters of financial statements provide valuable insights into a company's financial performance, trends, and changes over time.
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