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. NEED NEW ANSWER ASAP / ANSWER NEVER USED BEFORE Explain horizontal and vertical analysis. Do...

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NEED NEW ANSWER ASAP / ANSWER NEVER USED BEFORE

Explain horizontal and vertical analysis. Do some research .explain why these methods are used. What can we learn from horizontal and vertical analysis statements? How can results vary compared to other corporations and why can ratios better than using dollars?

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Horizontal analysis is the process of comparing the line of items over some time from comparative financial statements to track overall trends and performance. It helps calculate the relative and absolute variances for every line of an item through a comparative evaluation of financial statements for two or more periods. While, vertical analysis refers to making a comparison of each line of the item as a proportion of the base figure such as assets, liabilities, equity, and sales within the statement. It is a proportional evaluation of the financial statement.

Horizontal is used to represents the growth, status, and decline of an item. On the other hand, vertical analysis helps in determining and predicting the relative proportion of an item to the common item in the financial statement.

We can learn to ascertain the trend and changes in an item from Horizontal analysis while the proportion of items to the common item of the single accounting year from the vertical analysis.

The results vary compared to other corporations through vertical analysis as it helps to compare the results of the financial statement of one company with another company in the same industry since it is used to benchmark.

Ratios are better than using dollars because:

  • Ratios create benchmarks which help to measure the performance of all player in the industry and reveal the trends of a particular industry.
  • Ratios help investors and analysts to evaluate and communicate the strengths and weaknesses of individual firms, organizations, and industries.
  • They guide the entrepreneur while presenting a business plan or presentation in front of investors.


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