UTTARANCHAL UNIVERSITY

(Established vide Uttaranchal University Act, 2012, Uttarakhand Act No. 11

ASSIGNMENT COVER PAGE

Neha Dubey
Name of Student:
July
Batch:
MBA
Program:
OMBA 113
Subject & Code:
1st SEM
Semester:
2415010485
Learner ID:

NECESSARY INSTRUCTIONS
1. Cover Page must be filled in Capital Letters. All Fields of the
Form arecompulsory to be filled.
2. The assignment should be written / computer typed on A4 size paper and it should
be neatand clearly readable.
3. The cover page should be stapled at the front of each and every assignment.
4. Incomplete Assignments will not be accepted.
Financial statement analysis, which is a process of examining a company's financial statements to
develop strategies, is a valuable skill for financial analysts, accountants and other finance
professionals. Two common types of financial statement analysis are horizontal analysis and vertical
analysis. Knowing how to perform these practices can help you better understand a company's
financial data and pick out trends and patterns.In this article, we discuss the differences between
horizontal analysis and vertical analysis and provide a list of simple steps for performing both types
of financial statement analysis.

What is financial statement analysis?

Financial statement analysis is an important business practice that companies use to track financial
data and make predictions and comparisons. Companies perform financial statement analysis to help
monitor and make sense of data in financial statements, such as income statements, cash flow
statements, balance sheets and more.Analyzing these statements can provide insights into potential
problems and opportunities, and it can also help a company develop financial strategies and prepare
for the next quarter or year. Therefore, financial analysis can contribute heavily to a company's
overall success.

This type of analysis can also help a company secure investors. Investors, who often conduct
comprehensive research into a company's financial statements, can use financial analysis to make
sense of a company's financial data and compare one organization to another. This can help them
predict which company is more likely to experience financial growth and be an attractive investment.

There are multiple forms of financial statement analysis—including variance analysis, liquidity
analysis and profitability analysis—but two commonly used types are horizontal and vertical analysis.

What is horizontal analysis?

In horizontal analysis, also known as trend analysis or time series analysis, financial analysts look at
financial trends over periods of time—especially quarters or years. Typically, financial analysts
perform horizontal analysis before vertical analysis, and it is usually the most useful for companies
that have been operating for a long period of time.In horizontal analysis, you can compare figures
from one time period to figures from a base time period to get an overview of changes over time.
Analyzing financial trends over periods or years can help you track how a company's financial state
has changed, find patterns in its data and spot potential problems and opportunities.

For example, you could use horizontal analysis to compare a company's profit margins in one year to
its profit margins in another year. Alternatively, you could use it to pinpoint specific areas of the
company that are experiencing the most financial change. Based on your analysis, you could then
create recommendations for the company to consider to maximize its financial success.

How to perform horizontal analysis

Follow these three steps to perform a simple horizontal analysis:

2. Compare the statements. After gathering your statements, choose which line items to
analyze. Compare the same line items from different statements to determine how the
amounts have changed over time, and express the changes as percentages or dollar amount.

3 Identify patterns and trends in the data. Analyze the data to look for potential
problems or opportunities for the company. This can help the company plan for the
future and develop strategies to succeed. You can also come up with
recommendations for the company based on your analysis.

What is vertical analysis?

Vertical analysis, which is also known as common-size analysis, is similar to horizontal analysis and
can be performed on the same financial documents. However, financial analysts perform vertical
analysis vertically inside of a column rather than horizontally across time periods.

How to perform vertical analysis

You can use these steps to perform a vertical analysis:

1. Choose a financial statement. To begin your vertical analysis, locate the financial statement
that you would like to analyze. Typically, vertical analysis is used on the current year's
statement, but you could also analyze previous years.

2. Analyze amounts located in the same column of the statement. Next, choose the
appropriate column of the statement and look at the numbers that are located vertically
within the column.

3. Calculate each amount as a percentage of a base figure. Finally, take the amounts from the
column and calculate each amount as a percentage of the base figure, which has a value of
100%. Review the ratios to determine the company's financial state, and make
recommendations as necessary.

5. Here are some example scenarios of how you can use vertical analysis:

7. Imagine that a company's total assets are $800,000. This is the base figure,
which has a value of 100%. The company's real estate is $400,000. If you
divide $400,000 by $800,000, you get 0.5, which equates to 50%. Therefore,
the company's real estate can be expressed as 50% of its total assets, and its
other assets add up to the other 50%.