Can someone please help me with how to do a vertical and horizontal analysis for
ID: 2489953 • Letter: C
Question
Can someone please help me with how to do a vertical and horizontal analysis for the 5 years?
I'm confused with how the horizontal is supposed to be like. I saw an example where the years were compared to each other For example, 2015-2014 , 2014-2013, 2013-2012. Is this efficient in studying a company? I also saw a different example with the years all being compared to one base year ....is this preferred? Please explain ..thank you!
Balance Sheet 2015 2014 2013 2012 2011 Assets Cash and cash equivalents 5,595 8,669 3,804 6,938 9,610 Short-term investments 90,931 77,040 73,218 56,102 43,162 Accounts receivable 17,908 19,544 17,486 15,780 14,987 Inventories 2,902 2,660 1,938 1,137 1,372 Deferred income taxes 1,915 1,941 1,632 2,035 2,467 Other 5,461 4,392 3,388 3,092 3,320 Total current assets 124,712 114,246 101,466 85,084 74,918 Property and equipment net 14,731 13,011 9,991 8,269 8,162 Equity and other investments 12,053 14,597 10,844 9,776 10,865 Goodwill 16,939 20,127 14,655 13,452 12,581 Intangible assets, net 4,835 6,981 3,083 3,170 744 Other long-term assets 2,953 3,422 2,392 1,520 1,434 Total assets 176,223 172,384 142,431 121,271 108,704 Liabilities and stockholders’ equity Current liabilities: Accounts payable 6,591 7,432 4,828 4,175 4,197 Short-term debt 4,985 2,000 - - - Current portion of long-term debt 2,499 - 2,999 1,231 - Accrued compensation 5,096 4,797 4,117 3,875 3,575 Income taxes 606 782 592 789 580 Short-term unearned revenue 23,223 23,150 20,639 18,653 15,722 Securities lending payable 92 558 645 814 1,208 Other 6,766 6,906 3,597 3,151 3,492 Total current liabilities 49,858 45,625 37,417 32,688 28,774 Long-term debt 27,808 20,645 12,601 10,713 11,921 Long-term unearned revenue 2,095 2,008 1,760 1,406 1,398 Deferred income taxes 2,835 2,728 1,709 1,893 1,456 Other long-term liabilities 13,544 11,594 10,000 8,208 8,072 Total liabilities 96,140 82,600 63,487 54,908 51,621 Stockholders’ equity: Common stock and paid-in capital 68,465 68,366 67,306 65,797 63,415 Retained earnings 9,096 17,710 9,895 (856) (8,195) Accumulated other comp. income 2,522 3,708 1,743 1,422 1,863 Total stockholders’ equity 80,083 89,784 78,944 66,363 57,083 Total liabilities and stockholders’ equity 176,223 172,384 142,431 121,271 108,704Explanation / Answer
Hi mate,
I would like to clarify that, there is no specific rule or principle of doing analysis on basis of horizontal or vertical analysis.. It varies from question to question.
Il elaborate my point with an example,
Base Year - This concept is used in case of inter-firm comparison, that means when company is evaluating its performance with some other company in same industry or making a comparison with overall industry's performance..
Like Company ABC, wants to evaluate its performance with overall industry's performance, in that case ABC will select a base year and will make comparison of its financials with overall industry's financials to analyse whether its performance is at par, below or above the Industry's performance..
Similar comparison can be made by ABC with its competitor.
Comparison of Different Years It is used in case of intra-firm comparison, that means company is evaluating its performance with its own performance in past years which means company is evaluating its performance on year on year (YOY) basis..
U must have heard a listed companys financial results as- Companys revenue grow on 5.5% on YOY, whcih means companys current results are compared with previous year results, ultimately making an intra-firm comparison.
Now, coming back to your doubt, if questions asks to make the comparison of companys performance with industry;s performance or with its competitor performance, then use the concept of base year.
if question is just asking to evaluate companys's performance and data of various year is given,like data given in your question, then make analysis on the basis of different ratios, such as Accounts payable ratio, Accounts reveivable Ratio, Interest coverage ratio, Debt payment Ratio..