financial results is performed
The essence of vertical analysis is to calculate the specific value of any individual indicator in the general mass of similar values. In other words, an assessment is made of the structure where the relationship of an individual element with something unified, of which it is a part, occurs.
This approach has one peculiarity: it is not immediately clear what to take as the whole by which the particular values will have to be divided. The reason for this is simple - the principle of constructing the Report is subtraction, not addition.
Stages of conducting an analysis of the company's financial results
Vertical analysis is most the benefit of using our student database often implemented in two directions, presented below:
By calculating the share of retained earnings in equity or liabilities. This makes it possible to understand what significance the contribution of the accumulated result has in the total amount of sources of financing the organization's activities.
For other types of profit in the Report, it is necessary to correlate their values with income. Gross profit and profit from sales are calculated based on their ratios with revenue, and profit before tax and net profit are calculated based on the total amount of revenue and other income. The question arises: why is this so? The answer is that this is how the comparison is made with the type of income that was involved in calculating a specific type of financial result. Thanks to this, it is possible to determine the amount of income that the company can use at each stage of profit formation.
A necessary clarification is that vertical analysis makes no sense if the indicators are unprofitable.
Specific gravity is calculated using the following formula:
Ni = ∑Ni × 100%
Where:
Ni – the value of a specific indicator or its part;
∑Ni – the value of the general indicator, in which Ni is included as a constituent element.
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Step 3. Calculate profitability indicators
Absolute values of financial results are characterized by a low degree of comparability with data from other enterprises, even if the financial statements of organizations with similar activities are being studied. For example,