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Vertical Analysis Formula (Examples) | How to Calculate it? - YouTube
Channel: WallStreetMojo
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more about this video vertical analysis
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formula watch the video to the end in
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everyone and today's topic is what can
analysis formula in this topic we are
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going to get a deep hands on the
financial statement analysis this is a
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portion of financial statement analysis
and let's start with the formula first
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as you can see right in front of you
that there is a formula that's given
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below vertical analysis formula the
income statement formula is the income
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statement all the items divided by the
sales in 200 and balance sheet items you
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have by assets or liabilities divided by
or into 100 let's study this in a detail
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format first of all what is the vertical
analysis
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formula as simple as that if the
vertical analysis is a kind of the
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financial statement analysis wherein each
item in the financial statement is shown
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as a percentage of the base figure so
this is one of the most popular methods
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of financial statement used it used as
it is simple and it is called as the
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common size analysis so here all the
items in the income statement are stated
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as the percentage of the cross sales and
all the items in the balance sheets are
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stated as the percentage of the total
sales write total assets and there is
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opposite will go opposite of the
vertical analysis of the financial
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statement is the horizontal analysis and
it always looks at the amount of the
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financial statement over the horizontal
or horizon of the menials well the
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formula in the vertical analysis of the
financial statement the percentage is
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calculated by using the vertical
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analysis formula is equal to the
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individual item divided by base amount
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now the vertical analysis formula for
the income statement and balance sheet
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is given something like this the
vertical analysis the vertical analysis
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formula that is the income statement
part that's what I'm talking about I'll
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just write IS equal to the income
statement divided by the total sales in
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200 now again vertical analysis formula
the balance sheet is equal to tip
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balance sheet item divided by the
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total sales so the total assets all
liabilities into 100 so to increase the
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effectiveness of the vertical analysis
multiple your statements or reports can
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be compared in comparative analysis the
statement can be done so these analysis
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makes easier to compare the financial
statements of one company with another
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and across the companies as one can see
the relative portion of accounts
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let's take an example over here the
example of the vertical analysis here is
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that the example of the vertical
analysis of the financial statement
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which shows the total in the amount and
in postage let's say the total seals is
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standing at 1 million and the cost of
goods sold is just standing at 4,00,000
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dollars now there is salary that has
been paid to the workers 3,00,000 and
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the rent of the office that has been
paid is let's say around 30,000 and some
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utilities that you need which tends to
tend amounts to 40,000 and some other
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expenses $60,000 so the vertical
analysis formula will be to ruled all
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the individual items divided by total
sales in 200 so the above article
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example soft will work so just jot
down so we have all the details I don't
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need to write so the total sales I'm
just gonna put some rose hear the gross
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amount is going to be what 1 million
minus 4,00,000 that is 6,00,000 and then the
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percentage 100%, 40%
this is
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this is 60% then we have salary paid
3 lakh 30 40 60 so let's say the total
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expense is going to be how much 4,30,000 right you can just know if you
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want the percentage in game show you can
just start doing it or you know if you
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want to calculate that way then this is
what 33% for 4% ,6%
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and this is the total expense that is 43%
334 and 6 let me define this in
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terms of percentage so the net profit
comes down to what the gross - total
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expense that gives you your net and your
net comes down to what 17% so the
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above article analysis example shows
that the net profit of the company where
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we can see the net profit in both the
amounts in percentage in a mountain
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percentage where the same report can be
used to compare with some other
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industry where the income statement can
be compared with the previous years and
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net income can be compared where it
helps to compare the understated and
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percentage of rising or loss or income
percentage as you can see what we have
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done is the same thing here percentage
then for the year 2 how the data has
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been regarded here in terms of increase
in the salary
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because of the increase in the salary
the net profit is going down okay
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sales are remaining the same the rest
rent is increasing utilities is
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increasing other expenses are increasing
due to which taser sharp rise in the
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increase the rest remaining the same and
total your 3 remaining the same so
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in the above vertical analysis example
we can see that you know the income
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statement the income decreases from
first year to second year and then
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income increases to again 18% so
178 and 18 percent so by using this
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method it is easy to understand the net
profit as it is easy to compare between
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the ears in that we can easily
understand that the total expense
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gradually increase from 43 to 52 and the
net income got reduced from first year
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to second and then the third year as he
owed you has got decreased when compared
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to the previous years and the income
statement got increased so you own you
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can calculate the vertical analysis of
the balance sheet with the help of the
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another example that is also possible
you can do the balance sheet analysis
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which is also very important to learn
son over here this is vertical analysis
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with the help of the balance sheet
calculation as you can see cash
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receivables stock current assets fixed
asset and all the details are given so
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this is your total assets and then there
is your total liabilities equity and
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liabilities details are given well the
information provided in the balance
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sheet provides the changes in the
working capital
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fixed income over the period of time
whereas the altered business that
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requires a different amount of the
ongoing fund the same can be done like
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the income statement where the previous
can be compared and can found find out
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the change in the working capital and
the fixed assets over the time so as you
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can see the data is right visible in
front of now apart from that no I want
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to make you understand what exactly is
the advantages of the vertical analysis
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formula well it is one of the most
easiest method of financial analysis
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vertical analysis of the financial
statement provides a comparable
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percentage which can be used to compare
with the previous different organization
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statements can be compared and
comparison can be made easy now verticals
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analysis is also very useful to
compare the financial statements with
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the previous years and the statements
and analysis the profit or loss for the
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period where it is helpful where it
helps to understand the percentage share
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of the individual items where it also
helps in understanding the what we call
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as the structural composition of the
various components like cost expenses
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assets and liabilities what exactly are
the disadvantages
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well the vertical analysis the financial
statement does not help to take the Firm
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decision as there is no standard
percentage or ratio that is giving
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regarding the change in the components
of the income statement of the balance
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sheet now these accounting concepts and
conventions are not followed and no
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vigilantly in the vertical analysis
formula and the liquidity of the
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organization which cannot be measured
easily or exactly by using such analysis
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so the Equality analysis is not done by
using vertical analysis the financial
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statement there is no consistency in the
ratio of the elements so based on this
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let me make my final conclusion on this
topic now these method is one of this
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weather is one of the most easiest
method of analyzing the financial
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statement this method is easy to compare
with these previous reports and easy to
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prepare but this method is not useful to
make the form decision and measurement
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of the company value which cannot be
defined well that's it for this
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particular topic
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