Ratio, Vertical and Horizontal Analyses
The three tools of financial statements analysis are Horizontal (trend), Vertical (common size), and Ratio. The first financial statement analysis is horizontal which evaluates the performance of the company from one accounting period to the next. Horizontal analyses’ are conducted to assess any relative changes in different items over a specified time period. It also indicates the trends of revenues, expenses, and other line items of financial statements over the course of time. Another type of financial statement analysis is vertical which expresses all the different financial statements as a percentage of a base amount. The vertical analysis represents what percentage of an account is responsible in the financial statements. When applying this method on the balance sheet, all of the three major categories account; assets, liabilities, and equity are compared to the total assets. The third financial statement analysis is ratio which expresses the relationship among selected items in financial statements. This relationship is expressed in the form of a percentage, rate, or a proportion. External and internal will use this method in order to gauge the growth and or direction the company is going in. Whether it is a good idea in invest money in them or let them borrow money.
Current ratio for 2005:
$10,454 (Current Assets)
$ 9,406 (Current Liabilities) $10,454 divided by $9,406 is equaled to 1.11% Current ratio for 2004: $8,639 (Current Assets) $6,752 (Current Liabilities) $8,639 divided by $6,752 is equaled to 1.28%
Vertical analysis for 2005:
Current Assets divided by Total Assets 10,454 / 31,727 = .3294 or 32.9% Vertical analysis for 2004:
Current Assets divided by Total Assets 8,639 / 27,987 = .3086 or 30.9% Horizontal analysis:
Current Assets 2005 divided by Current Assets 2004 10,454 / 8,639 = 1.21 or...