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Question
Distinguish between Vertical and Horizontal Analysis of financial data.
Solution
|
Basis of Difference |
Horizontal Analysis |
Vertical Analysis |
|
Meaning |
It refers to the comparison of an item of the financial statement of one period or periods to its corresponding item of the base accounting period. |
It refers to the comparison of itemitems of the financial statement to the common item of the same accounting period. |
|
Purpose |
Its purpose is to determine the change in an item during an accounting period. The change in the item is expressed either in absolute figures or in percentage or in both terms. |
Its purpose is to determine the proportion of item/items to the common item of the same accounting period. The change in the item is expressed either in ratio or in percentage terms. |
|
Usefulness |
It indicates growth or decline of the item. |
It helps in predicting and determining the future relative proportion of an item to the common item. |
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