Is vertical analysis and common sieze balance sheet / analysis are same plz explain in detail
Dear Student
Vertical analysis means the comparison of an item of financial statement to a common item of the same accounting period , This is done to determine the proportion of respective item to a common item.
Now looking at the definition of the common size balance sheet or common size financial statements, It says These statements depict the relationship between various items of financial statements and some common items (like Net Sales and the Total of Balance Sheet) in percentage terms. In other words, various items of Trading and Profit and Loss Account such as Cost of Goods Sold, Non-Operating Incomes and Expenses are expressed in terms of percentage of Net Sales. On the other hand, different items of Balance Sheet such as Fixed Assets, Current Assets, Share Capital etc. are expressed in terms of percentage of Total of Balance Sheet. These percentage figures are easily comparable with that of the previous years’ (i.e. inter-firm comparison) and with that of the figures of other firms in the same industry (i.e. inter-firm comparison) as well.
Therefore from the meaning of both the definitions, it can be said that they both are same i.e vertical analysis and common size balance sheet are same, But the main difference is that Vertical analysis is a method of analysis and Common size statements are the technique or tool to use that method.
Therefore common size balance sheet is a part of vertical analysis.
Regards
Vertical analysis means the comparison of an item of financial statement to a common item of the same accounting period , This is done to determine the proportion of respective item to a common item.
Now looking at the definition of the common size balance sheet or common size financial statements, It says These statements depict the relationship between various items of financial statements and some common items (like Net Sales and the Total of Balance Sheet) in percentage terms. In other words, various items of Trading and Profit and Loss Account such as Cost of Goods Sold, Non-Operating Incomes and Expenses are expressed in terms of percentage of Net Sales. On the other hand, different items of Balance Sheet such as Fixed Assets, Current Assets, Share Capital etc. are expressed in terms of percentage of Total of Balance Sheet. These percentage figures are easily comparable with that of the previous years’ (i.e. inter-firm comparison) and with that of the figures of other firms in the same industry (i.e. inter-firm comparison) as well.
Therefore from the meaning of both the definitions, it can be said that they both are same i.e vertical analysis and common size balance sheet are same, But the main difference is that Vertical analysis is a method of analysis and Common size statements are the technique or tool to use that method.
Therefore common size balance sheet is a part of vertical analysis.
Regards