Balance Sheet Vertical analysis means the vertical evaluation of Balance sheet and other financial statements in terms of the relative percentage change in line items.
While performing Balance sheet Vertical analysis, each amount from all 3 major sections of the balance sheet, are taken into consideration.
Each item from assets, liabilities and shareholder equities is shown as a percentage of the base figure.
It is also known as a common-size analysis. It is one of the popular methods of financial statement analysis.
Generally, the totals of Asset, Liabilities and Stockholder’s Equity are considered as base figures.
All the individual figures of an asset are shown as the percentage of the total asset amount.
Similarly, individual figures of liabilities and Shareholder’s equity is shown as a percentage of the mutual total of Liabilities and Shareholder’s Equity.
Percentage = Individual amount/ Base amount.
Where the base amount is the Total of Asset or Mutual Total of Liabilities and Shareholder’s Equity. To increase the usefulness of vertical analysis, you can use multiple years of data for comparative analysis.
Balance Sheet Vertical Analysis Excel Template
We have created a Balance Sheet Vertical Analysis Template with predefined formulas and categories of Assets, Liabilities and Shareholder’s Equity. It is free to use and you can also customize it as per your need.
This template is useful for conducting the financial analysis of businesses. Accounting professionals, individual investors, and auditors to evaluate the change in Balance sheet figures over some time.
You just need to input the respective amounts of the balance sheet in the light blue columns. The template will automatically do the vertical analysis for you.
Let us discuss the contents of the Balance Sheet Vertical Analysis Template in detail.
Contents of Balance Sheet Vertical Analysis Template
This template consist of 3 major sections:
1. Header Section
2. Assets Section
3. Liabilities and Shareholder’s Equity Section
1. Header Section
The first row consists of Company Name followed by the heading of sheet ” Vertical Analysis of Comparative Balance Sheets along with years of comparison.
2. Assets Section
Asset Section consists of the current assets and fixed assets of the company.
Current assets include cash and other cash equivalents like Accounts receivables, securities, inventory, and prepaid expenses.
Fixed assets include property, plant and equipment.
Total Asset = Current Assets + Fixed Assets
3. Liabilities and Shareholder’s Equity
a) Liabilities: Liabilities include accounts payable, staff salaries, accrued liabilities, short-term borrowings, and unpaid taxes.
b) Shareholder’s Equity: Shareholder’s Equity includes preferred stock/owners equity, common stock/public Equity and retained earnings.
The subheading included here are as per the balance sheet data we have taken. It differs from cases to cases. You can add or remove subheadings are per your requirement.
Benefits of Vertical Analysis
1. It helps to see the relative annual changes of a particular business.
Usually, the vertical analysis is done for a single period to see the proportionate account balances. But you can also it over several periods to identify changes in accounts over time.
2. It helps the managing authorities to closely monitor companies financial performance over some time.
3. It helps to identify the change in the behaviors of accounts and take action accordingly.
Thus, performing vertical analysis helps in many ways, especially when we are planning to investment or buying a business.
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