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Vertical analysis (also known as common-size analysis) is a technique for comparing financial statements. It expresses every item as a percentage from the base amount. This technique is often used to evaluate different companies, or track the changes within a company over time.
Vertical Analysis of Balance sheet: Assets and liabilities are divided with total assets. This allows each line on the balance to be expressed in terms of a percentage from total assets. This allows for easy comparison between two companies’ relative sizes based on their asset composition at any given point in time.
Vertical analysis of income statements: This calculates the percentage of revenue or expenses in an income statement as a function of net sales during the time period. Analysts and investors can use this information to determine the amount of money spent on marketing and production, rather than just focusing on dollar figures (which might not be accurate). The chart also shows how much profit was retained, and what proportion was paid out as dividends or other distributions.
In sum then, vertical analyses offer an effective way to quickly compare different companies’ financials while also being able to track performance within one company over time. Although it is important to note that this type of analysis should never replace traditional fundamental/technical research methods – when used alongside them it can provide valuable insight into how efficiently businesses use their resources and allocate capital towards various activities.