Select the correct statement regarding vertical analysis.
A)Vertical analysis of the income statement involves showing each item as a percentage of sales.
B)Vertical analysis of the balance sheet involves showing each asset as a percentage of total assets.
C)Vertical analysis examines two or more items from the financial statements of one accounting period.
D)All of these answers are correct.

Question

Quizplus · Accepted Answer

All three statements are correct. Vertical analysis is a technique used in financial statement analysis in which each item on a company's financial statements is presented as a percentage of a specific base figure within the same statement. For the income statement, the base is usually sales, and for the balance sheet, the base is usually total assets. Vertical analysis is useful for comparing the relative proportions of different items within the same statement and for identifying trends over time.

Select the Correct Statement Regarding Vertical Analysis