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Module 10 - Learning Material

Module 10 covers financial statement analysis, focusing on Horizontal and Vertical Analysis as tools to assess a company's performance and trends. Horizontal Analysis compares financial data over multiple periods to identify growth patterns, while Vertical Analysis expresses each item as a percentage of a base figure. The document includes formulas for both analyses and provides example data for income statements to illustrate their application.

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ricamaelafuente8
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3 views3 pages

Module 10 - Learning Material

Module 10 covers financial statement analysis, focusing on Horizontal and Vertical Analysis as tools to assess a company's performance and trends. Horizontal Analysis compares financial data over multiple periods to identify growth patterns, while Vertical Analysis expresses each item as a percentage of a base figure. The document includes formulas for both analyses and provides example data for income statements to illustrate their application.

Uploaded by

ricamaelafuente8
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Module 10

Financial statement analysis helps users understand a company’s


performance, trends, and cost structure. Two important tools used for this
purpose are Horizontal Analysis and Vertical Analysis. When used
together, they provide a clearer and more complete picture of financial
performance.

Learning Objectives

After studying this material, learners will be able to:

 Define horizontal and vertical analysis and perform calculations for


both methods

Horizontal Analysis - compares financial information over two or more


periods to identify trends and growth patterns.

Formula

Absolute Change = Current Year − Previous Year

Percentage Change = (Absolute Change ÷ Previous Year) × 100

Vertical Analysis - expresses each item in a financial statement as a


percentage of a base figure.

 For income statements, the base is Revenue

 For balance sheets, the base is Total Assets

Purpose

 Analyze cost structure

 Compare companies of different sizes

 Evaluate profitability and efficiency

Formula

Vertical Percentage = (Item ÷ Base Amount) × 100


Income Statement Data

Vertical Analysis
Item 2023 2024 2023 2024

Revenue (Base 500,000 600,000 100% 100%


500,000/500,0 600,000/600,000 = 1
amount)
00 = 1 x 100 x 100 = 100%
= 100%

Cost of Goods Sold 300,000 360,000 60% 60%


360,000/600,000 =
300,000/500,0 0.6 x 100 = 60%
00 = 0.6 x 100
= 60%

Please complete the vertical analysis table. This will serve as your
PERFORMANCE TASK for today.
Gross Profit 200,000 240,000

Operating Expenses 120,000 150,000

Operating Income 80,000 90,000

Net Income 60,000 70,000

Horizontal Analysis
Item 2023 2024 Amoun % of
t change
Revenue (Base 500,000 600,000 100,00 20%
amount) 600,000 – 500,000 = 0
100,000/500,000 =
0.2 x 100 = 20%

Cost of Goods Sold 300,000 360,000 60,000 20%


360,000 – 300,000 =
60,000/300,000 =
0.2 x 100 = 20%

Please complete the horizontal analysis table. This will serve as your
PERFORMANCE TASK for today.
Gross Profit 200,000 240,000

Operating Expenses 120,000 150,000

Operating Income 80,000 90,000

Net Income 60,000 70,000

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