Vertical Analysis Financial Metrics

Due to the complexity of corporate financial statements, the prospect of deciphering meaningful insight can be a daunting task (thevalueatrisk.blogspot.com, 2009). A relatively effective process exists known as Vertical Analysis. The premise of Vertical Analysis is to create common-size financial statements, where all balance sheet and income statement items are converted into percentage terms for purposes of comparison. Using vertical analysis, comparisons can be made between firms regardless of size. This approach is especially useful when determining the relative financial health of competing firms within the same industry. Financial metrics display a large degree of variability across industries; however, within a given industry, competitors