Vertical analysis helps to assess the real position of the enterprise in the market in which it promotes its services or goods. The ability to evaluate this position gives a percentage. So, an accounting specialist, who undertook to perform a vertical analysis of the balance sheet of an enterprise, simply translates the cost figures into percent. Why is this needed? Most managers approve of this particular reporting method and distinguish it from others: a vertical analysis of the balance sheet is the most revealing and visual. And with it, you can easily draw a graph of the profitability or loss-making of the enterprise. Therefore, if you want to establish yourself as a good specialist, you need to learn this method.
At first glance, this is quite difficult, but professionals know what’s what, and easily cope with this task. The main thing is to know exactly what figure you need to take for one hundred percent. We will tell you. This figure is the general part with which the cost of each element is subsequently compared separately.
This helps to understand what is the specific gravity of each element of the system. And this makes it possible to easily find weaknesses that interfere with the productive work of the enterprise and do not contribute to its enrichment. It is vertical analysis that makes forecasting possible, which is an important point in the work of any enterprise.
Thanks to this type of work, one can easily conduct a comparative analysis of organizations. Naturally, in this case it is necessary to take into account the specifics and competitiveness of each of them. In other words, this type of analysis shows the enterprise not in a static state, but in dynamics, even in development. It is no accident that the term “structural dynamics” is often applied to the term “vertical analysis”. Thus, forecasting the receipt of funds in a particular industry is carried out. By the way, the vertical analysis does not particularly track the accounting of inflation indicators, which makes this view not accurate enough.
How to learn to do vertical analysis? There are a lot of options: the simplest is not to miss classes at an educational institution and ask questions about the design of this analysis. You can also ask older and more experienced colleagues to clarify your situation. If pride does not allow you to use the latter option, then you can find examples of analyzes on the Internet and understand everything yourself, which is quite difficult.
The advantage of the second method is that it flatter senior colleagues when they turn to them for help - so you can easily get their location and, if something happens, take advantage of their favor. The third one contributes to the fact that you learn to do vertical analysis perfectly - there is no knowledge better than that which you got yourself. However, there is a cornerstone here: in no case do not mix up the vertical and horizontal analysis with each other - this is fraught with consequences.
What are their main differences? Vertical analysis translates real numbers into relative indicators, and horizontal analysis takes as a basis only the numbers that are obtained in the end, that is, dynamics and development are not taken into account in the second case. There is a difference in the intervals - horizontal takes as a basis only one particular period of time, and vertical tries to cover the work of the enterprise as a whole.
For an effective comparison, it is very useful to conduct both analyzes at the same time, but the vertical one is more labor-consuming and complicated, so you should first provide this type of report to the boss - a competent leader will immediately evaluate your capabilities.
