Chapter 2, Vertical Analysis (Deck 2.3)

Question 1

What is Vertical Analysis?

Answer 1

Vertical Analysis is where you take either your Income Statement or Balance Sheet and take all of your numbers as a Percent of Something.

Question 2

What percent do we take on the Income Statement?

Answer 2

On the Income Statement we take each number as a percent of Sales.

Question 3

What percent do we take on the Balance Sheet?

Answer 3

On the Balance Sheet we take each number as a percent of Total Assets.

Question 4

Explain the process of Vertical Analysis when looking at a financial statement.

Give an Example in relation to the Publix Statements explained in Prof. Gaukel’s Lecture.

Answer 4

Using Vertical Analysis, set both start and end period’s Total Revenues to 100%.
We will then take everything else as a percent of that number.
Example: Take the Total Revenue amount and divide it by the Sales amount.
(Sales / Total Revenue = %)

You’ll then compare those two year’s percentages with one another to get a better idea of how the business is doing.

Example: Publix’s Net income was way down, but the loss was actually in a non-operating account.
The non-operating costs don’t give the analyst as much concern as operations.