Which of the following is the definition of vertical analysis?
A)Vertical analysis is the analysis in which percentages are computed by selecting a base year as 100% and expressing amounts for following years as a percentage of the base amount.
B)Vertical analysis is the practice of comparing a company with other companies that are leaders.
C)Vertical analysis is the study of percentage changes in comparative financial statements.
D)Vertical analysis is the analysis of a financial statement that reveals the relationship of each statement item to a specified base,which is the 100% figure.

Question

Quizplus · Accepted Answer

Vertical analysis is a technique of analyzing financial statements where each item of the statement is represented as a percentage of a particular base figure. The base figure is usually taken as 100% and the relationship of each item to the base figure is shown in the form of percentages. This helps in understanding the relative significance of each item in the financial statement and also facilitates comparison between different companies or different periods of the same company. Choice D defines vertical analysis accurately.

Which of the Following Is the Definition of Vertical Analysis