Vertical analysis of the balance sheet, the importance of vertical analysis, the specifics of vertical analysis, the need for vertical analysis

Vertical analysis helps to assess the real position of the enterprise in the market, where it promotes its services or goods. The ability to evaluate this position gives a percentage. So, the accounting specialist, who undertook to perform a vertical analysis of the balance of the enterprise, simply translates the figures of value into percentages. Why is this necessary? Most of the chiefs approve this way of reporting and distinguish it among others: a vertical analysis of the balance sheet is the most revealing and vivid. And with its help it is easy to draw a schedule of profitability or unprofitability of the enterprise. Therefore, if you want to prove yourself as a good specialist, you need to master this method.

At first glance, this is quite difficult, but professionals know what's what, and they easily cope with this task. The main thing is to know exactly what figure should be taken for one hundred percent. We will guide 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 weight 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 the vertical analysis that makes forecasting possible, which is an important point in the work of any enterprise.

Thanks to this type of work, you 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 kind of analysis shows the enterprise not in a static state, but in dynamics, even in development. It is no accident that the expression "structural dynamics" is often applied to the term "vertical analysis". Thus, the forecasting of the receipt of money in this or that branch is carried out. By the way, with vertical analysis, inflation indicators are not particularly traced, which makes this species not accurate enough either.

How to learn to do vertical analysis? There are a lot of options: the easiest is not to miss classes at the school and ask questions about the design of this analysis. You can also ask older and more experienced colleagues to clarify the situation to you. If you use the last option you do not allow pride, then you can find examples of analyzes on the Internet and understand everything yourself, which is quite difficult.

Plus the second method is that the senior colleagues are flattered when they are approached for help - so you can easily achieve their location and be able, if anything, to take advantage of their favor. The third one contributes to the fact that you will learn how to do a vertical analysis in perfection - there is no knowledge better than the one you got yourself. However, here again there is a cornerstone: in no case do not confuse 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 the horizontal analysis takes as a basis only the figures that are obtained as a result, that is, the dynamics and development in the calculation in the second case do not go. There is a difference in the intervals - the horizontal takes as a basis only one particular period of time, and the vertical one tries to cover the work of the enterprise as a whole.

For effective comparison, it is very useful to carry out both analyzes simultaneously, but the vertical one is more labor-intensive and complex, therefore it is necessary to first provide this type of report to the manager-a competent leader will immediately evaluate your possibilities.