Horizontal and Vertical Analysis
Financial Analysis
XACC280
June 28, 2012
Accounting is the way all companies keep track of their out-going and in-coming finances. Applying accounting principles in any business is incredibly important because it allows for the least amount of mistakes and gives a comprehensive view of all transactions. There are many tools used in accounting, each with it’s own unique function. Statements are used to show a specific time period’s overview of assets, liabilities, and all transactions. These statements allow for easier comparing of months, years, or even different companies accounts. Two of the tools of financial statement analysis are called vertical analysis and horizontal analysis. Much like the definitions of vertical and horizontal, these two analyses are similar, but also have striking differences. In this paper I will provide you with information regarding the two tools, vertical and horizontal analysis, and how comparing them is applied to two big businesses called PepsiCo, Incorporated and Coca-Cola Company.
When referring to vertical analysis, we are referring to when a total percentage is calculated for one financial statement. As defined on “Accounting Coach” (2012), “A type of financial analysis involving income statements and balance sheets. All income statement amounts are divided by the amount of net sales so that the income statement figures will become percentages of net sales. All balance sheet amounts are divided by total assets so that the balance sheet figures will become percentages of total assets,” (Dictionary). Using vertical analysis is very helpful when comparing a company’s percentages between statements, (Price, Haddock, & Brock, para. Vertical analysis of financial statements, 2007). It can also be helpful when comparing numbers of two companies that are within the same trade; such as the companies being compared in this paper: PepsiCo, Inc. and Coca-Cola Company. Using vertical analysis will help us to compare how
XACC280
June 28, 2012
Accounting is the way all companies keep track of their out-going and in-coming finances. Applying accounting principles in any business is incredibly important because it allows for the least amount of mistakes and gives a comprehensive view of all transactions. There are many tools used in accounting, each with it’s own unique function. Statements are used to show a specific time period’s overview of assets, liabilities, and all transactions. These statements allow for easier comparing of months, years, or even different companies accounts. Two of the tools of financial statement analysis are called vertical analysis and horizontal analysis. Much like the definitions of vertical and horizontal, these two analyses are similar, but also have striking differences. In this paper I will provide you with information regarding the two tools, vertical and horizontal analysis, and how comparing them is applied to two big businesses called PepsiCo, Incorporated and Coca-Cola Company.
When referring to vertical analysis, we are referring to when a total percentage is calculated for one financial statement. As defined on “Accounting Coach” (2012), “A type of financial analysis involving income statements and balance sheets. All income statement amounts are divided by the amount of net sales so that the income statement figures will become percentages of net sales. All balance sheet amounts are divided by total assets so that the balance sheet figures will become percentages of total assets,” (Dictionary). Using vertical analysis is very helpful when comparing a company’s percentages between statements, (Price, Haddock, & Brock, para. Vertical analysis of financial statements, 2007). It can also be helpful when comparing numbers of two companies that are within the same trade; such as the companies being compared in this paper: PepsiCo, Inc. and Coca-Cola Company. Using vertical analysis will help us to compare how
References: Accounting coach. (2012). Retrieved from http://www.accountingcoach.com/ Price, J. E., Haddock, M. D., & Brock, H. R. (2007). College Accouting (11th ed.). Retrieved from http://highered.mcgraw-hill.com/sites/0073029920/student_view0/ebook/chapter23/chbody45/vertical_analysis_of_financial_statements.html. Investopedia. (2012). Retrieved from http://www.investopedia.com/terms/h/horizontalanalysis.asp#axzz1z91O1lS9 University of Phoenix. (2008). Appendix A- Specimen financial statements: PepsiCo, Inc. Retrieved from University of Phoenix, XACC 280 - Accounting Concepts and Principles website. University of Phoenix. (2008). Appendix B- Specimen financial statements: The Coca-Cola Company. Retrieved from University of Phoenix, XACC 280 - Accounting Concepts and Principles website.