HORIZONTAL

AND
VERTICAL ANALYSIS
Learning Competencies:
The learners shall be able to
perform vertical and horizontal
analyses of financial statements of a
single proprietorship.
(ABM_FABM12-Ig-h-13)
Introduction:
2014 JFC Annual Report to SFP
@ page 41

How much is JFC’s total assets

as of December 31, 2014?
 Answer Php54 118 679 600

How much of JFC’s liabilities

are due to be paid on or
before December 31, 2015?
 Answer Php19 090 920 318

Determine the amount of JFC’s 2014

advertising expenses?
Answer: Php1 852 967 633

How much revenue did JFC

earn in 2014 from royalties
and franchise fee?
Answer: Php4 461 460 490
 What is the asset growth in 2014?
 Is the asset composition in 2013 the same as that
in 2014?
 Compare the financing mix (portion of assets
financed by debt and equity, respectively) of
JFC in 2014 and 2013 and determine if there
is a significant change.
 Is the revenue growth in 2014 better than that in
2013?
 Is the net income growth in 2014 better than that
in 2013?
Financial statement (FS) analysis
 is the process of evaluating risks, performance, financial
health, and future prospects of a business by subjecting
financial statement data to computational and analytical
techniques with the objective of making economic decisions
(White et.al 1998).There are three kinds of FS analysis
techniques:
- Horizontal analysis
- Vertical analysis
- Financial ratios
 Horizontal Analysis
 also called trend analysis or;
 Increase- decrease method compares financial data from two
consecutive periods.
 is a technique for evaluating a series of financial
statement data over a period of time with the purpose of
determining the increase or decrease that
has taken place (Weygandtet.al 2013).
 This will reveal the behavior of the account over time.
 Is it increasing, decreasing or not moving?
 What is the magnitude of the change?
 Also, what is the relative change in the balances of the account over
time?
 Horizontal analysis uses financial statements of two or more
periods.
 All line items on the FS may be subjected to horizontal
analysis.
 Only the simple year-on-year (Y-o-Y) grow this covered in this
lesson.
 Changes can be expressed in monetary value (peso) and
percentages computed by using the following formulas:
• Peso change = Balance of Current Year -Balance of Prior Year
(base year)
• Percentage change= (Balance of Current Year-Balance of
Prior Year)/(Balance of Prior Year) or divide the difference
with the base year figures.
Example:
2015 2014
Sales Php250 000 Php175 000

Peso change = Php250 000 - Php175 000

= Php75,000
 Percentage change = (Php250 000 –
Php175 000) / Php175 000 = 42.86%
 This is evaluated as follows:
• Sales increased by P75,000.
• This represents growth of 42.86%
from 2013 levels.
 Vertical analysis, also called
common-size analysis
 is a technique that expresses each financial
statement item as a percentage of a base
amount (Weygandt et.al. 2013).
 For the SFP, the base amount is Total Assets.
• Balance of Account / Total Assets.
• From the common-size SFP, the analyst can infer
the composition of assets and the company’s
financing mix.
Example: % of assets
Cash Php200 000 200 000/1 400 000 = 14.3%
Accounts Receivable 400 000 400 000/1 400 000 = 28.6%
Inventory 250 000 2 500 000/1 400 000 = 17.9%
Equipment 550 000 550 000/1 400 000 = 39.3%
Total Assets Php1 400 000 Sum of the components is 100%

Accounts Payable Php300 000 300 000/1 400 000 = 21.4%

Notes Payable 400 000 400 000/1 400 000 = 28.6%
Owner, Capital 700 000 700 000/1 400 000 = 50.0%
Total Liabilities
and equity Php1 400 000 Sum of the components is 100%
This is evaluated as follows:
 The largest component of asset is
Equipment at 39.3%.
 Cash is the smallest component at 4%.
 On the other hand, 50% of assets are
financed by debt and the other half is
financed by equity.
For the SCI, the base amount is Net Sales.
• Balance of Account / Total Sales.
• This will reveal how “Net Sales” is used
up by the various expenses.
• Net income as a percentage of sales is
also known as the net profit margin.
Example: % of assets
Net Sales Php900 000
Cost of Goods Sold 400 000 400 000/900 000 = 44.4%
Gross Profit 500 000 500 000/900 000 = 55.5%
Operating Expenses 200 000 200 000/900 000 = 22.2%
Net Income 300 000 300 000/900 000 = 33.3%
The above may be evaluated as follows:
• The cost of goods sold is 44% of sales.
The company has a gross profit rate of
55.5%. Operating expenses is 22% of sales.
• The company earns income of Php0.33 for
every peso of sales. Gross profit
generated for every peso of sale is
Php0.555
The use of common-size financial
statements allows the comparison of
two companies of different sizes.
This is because the SFP and SCI
comparative information are
standardized as a percentage of
assets and sales, respectively.
Differentiate horizontal
analysis from vertical
analysis?
Group Activity.
 Using any spreadsheet application, i.e. MS
Excel, create a worksheet model for
horizontal and vertical analysis.
 Use the downloaded audited financial
statement (2014JFC audited SFP and SCI)
from the Introduction section to test the
worksheet model and;
 answer the questions posted earlier in the
Introduction section.
Data for AMYLQUO Trading Company
2014 2015
Revenue Php1 939 500 Php1 674 675
Cost of Goods Sold 900 000 843 975
Gross Profit 1 039 500 830 700
Selling and
General Expenses 445 500 409 725
Other Expenses 37 575 30 825
Net Income Php556 425 Php390 150
Requirements:
a. Prepare a horizontal analysis for AMYLQUO Trading
Company.
b. Prepare a common-size Statement of
Comprehensive Income for 2014 and 2013 for
AMYLQUO Trading Company.
 C&F Store
Statement of Financial Position
As of December 31
2014 2013
Cash Php110 000 Php87 400
Accounts Receivable 90 000 69 920
Inventory 129 000 218 500
Prepaid Rent 12 000 4 370
Delivery Van 550 000 493 810
Total Assets 891 000 874 000
Accounts Payable 75 000 67 298
Loan Payable 400 000 393 300
Anistle Cruz, Capital 416 000 413 402
Total Liabilities and Equity Php891 000 874 000
 C&F Store
Statement of Comprehensive Income
For the period ending December 31
2014 2015
Sales Php810 000 Php686 000
Cost of Goods Sold 348 300 301 750
Gross Profit 461 700 384 250
Operating Expenses 234 900 205 800
Interest Expense 40 500 17 150
Net Income 186 300 161 300
Thank You!
TGBTG….