Question

Explain four differences between horizontal and vertical analysis.

Answer 1

Distinction between Horizontal Analysis and Vertical Analysis:

Basis	Horizontal Analysis	Vertical Analysis
Period	It requires comparative financial statements of two or more accounting periods.	It requires a statement of one period.
Components of items	It deals with same item of different periods.	It deals with different item of same period.
Information	It provides information in absolute and percentage terms.	If provides information in percentage terms.
Usefulness	It is generally used for time series analysis.	It is generally used for cross sectional analysis.
Comparison	It is a part of comparison.	It is a step towards comparison.