Vertical Analysis Calculator
This tool helps you perform vertical analysis, a method used in financial statement analysis. It shows each line item on a financial statement as a percentage of a base figure within the statement. For example, on an Income Statement, each expense item is shown as a percentage of Total Revenue. On a Balance Sheet, each asset is shown as a percentage of Total Assets.
Enter the value of the specific Line Item you want to analyze and the value of the corresponding Total or Base Figure. The tool will calculate the percentage.
Enter Values for Analysis
Understanding Vertical Analysis
What is Vertical Analysis?
Vertical Analysis is a technique used to analyze financial statements by showing the relationship of each line item to a base figure within the statement. This allows for easy comparison of line items across different periods or between different companies, regardless of their size.
For example:
- On an **Income Statement**, each line item (Cost of Goods Sold, Gross Profit, Operating Expenses, Net Income, etc.) is typically expressed as a percentage of **Total Revenue**.
- On a **Balance Sheet**, each line item (Cash, Accounts Receivable, Inventory, Property Plant & Equipment, Accounts Payable, Long-term Debt, Common Stock, Retained Earnings, etc.) is typically expressed as a percentage of **Total Assets** (for asset items) or **Total Liabilities & Equity** (for liability and equity items, as Total Assets must equal Total Liabilities & Equity).
This calculation helps analysts understand the composition of a company's revenue, assets, or liabilities, highlighting significant items and trends.
Vertical Analysis Formula
The calculation is straightforward:
Percentage = (Line Item Value / Total or Base Figure) * 100
Example Calculation
If a company has Sales Revenue of $500,000 and Cost of Goods Sold (COGS) of $200,000:
Line Item Value = $200,000 (COGS)
Total or Base Figure = $500,000 (Sales Revenue)
Calculation: Percentage = ($200,000 / $500,000) * 100 = 0.4 * 100 = 40%
Conclusion: COGS represents 40% of Sales Revenue.
Vertical Analysis Examples
Click on an example to see the scenario and calculation:
Example 1: Cost of Goods Sold % of Revenue
Scenario: Analyze how much of each revenue dollar is spent on the cost of producing goods.
Input: Line Item Value = $150,000 (Cost of Goods Sold), Total/Base Figure = $450,000 (Total Revenue)
Calculation: ($150,000 / $450,000) * 100 ≈ 33.33%
Conclusion: Cost of Goods Sold is approximately 33.33% of Total Revenue.
Example 2: Operating Expenses % of Revenue
Scenario: Determine the proportion of revenue used to cover operating costs (like salaries, rent, marketing).
Input: Line Item Value = $80,000 (Operating Expenses), Total/Base Figure = $450,000 (Total Revenue)
Calculation: ($80,000 / $450,000) * 100 ≈ 17.78%
Conclusion: Operating Expenses are approximately 17.78% of Total Revenue.
Example 3: Net Income % of Revenue (Profit Margin)
Scenario: Calculate the net profit margin, showing how much profit is generated per dollar of revenue.
Input: Line Item Value = $65,000 (Net Income), Total/Base Figure = $450,000 (Total Revenue)
Calculation: ($65,000 / $450,000) * 100 ≈ 14.44%
Conclusion: The Net Income (Profit Margin) is approximately 14.44% of Total Revenue.
Example 4: Cash % of Total Assets
Scenario: See what proportion of a company's total assets is held in cash.
Input: Line Item Value = $50,000 (Cash), Total/Base Figure = $800,000 (Total Assets)
Calculation: ($50,000 / $800,000) * 100 = 6.25%
Conclusion: Cash represents 6.25% of Total Assets.
Example 5: Inventory % of Total Assets
Scenario: Understand the significance of inventory relative to the total asset base.
Input: Line Item Value = $250,000 (Inventory), Total/Base Figure = $800,000 (Total Assets)
Calculation: ($250,000 / $800,000) * 100 = 31.25%
Conclusion: Inventory represents 31.25% of Total Assets.
Example 6: Accounts Payable % of Total Liabilities & Equity
Scenario: Analyze the proportion of short-term debt (what the company owes suppliers) relative to its total funding sources.
Input: Line Item Value = $100,000 (Accounts Payable), Total/Base Figure = $800,000 (Total Liabilities & Equity)
Calculation: ($100,000 / $800,000) * 100 = 12.5%
Conclusion: Accounts Payable represents 12.5% of Total Liabilities & Equity.
Example 7: Common Stock % of Total Liabilities & Equity
Scenario: See the contribution of shareholder equity from stock issuance to the total funding.
Input: Line Item Value = $300,000 (Common Stock), Total/Base Figure = $800,000 (Total Liabilities & Equity)
Calculation: ($300,000 / $800,000) * 100 = 37.5%
Conclusion: Common Stock represents 37.5% of Total Liabilities & Equity.
Example 8: Marketing Expenses % of Total Expenses
Scenario: While less common as a primary base, sometimes sub-totals are used. Analyze marketing spend relative to all operating expenses.
Input: Line Item Value = $20,000 (Marketing Expenses), Total/Base Figure = $80,000 (Total Operating Expenses)
Calculation: ($20,000 / $80,000) * 100 = 25%
Conclusion: Marketing Expenses represent 25% of Total Operating Expenses.
Example 9: Specific Asset % of Current Assets
Scenario: Analyze the concentration of a specific current asset (like Accounts Receivable) within the total pool of current assets.
Input: Line Item Value = $150,000 (Accounts Receivable), Total/Base Figure = $300,000 (Total Current Assets)
Calculation: ($150,000 / $300,000) * 100 = 50%
Conclusion: Accounts Receivable represents 50% of Total Current Assets.
Example 10: Tax Expense % of Pre-Tax Income
Scenario: Calculate the effective tax rate.
Input: Line Item Value = $15,000 (Income Tax Expense), Total/Base Figure = $80,000 (Income Before Tax)
Calculation: ($15,000 / $80,000) * 100 = 18.75%
Conclusion: Income Tax Expense represents 18.75% of Income Before Tax (Effective Tax Rate).
Why Use Vertical Analysis?
Vertical analysis provides several benefits:
- **Comparability:** It allows comparison of companies of different sizes or comparison of a company's performance over different periods (even with changing revenue/asset levels) by standardizing the figures to percentages.
- **Trend Analysis:** By comparing vertical analysis percentages over several periods, you can identify trends in the composition of revenue, expenses, assets, or liabilities. For example, is COGS consistently increasing as a percentage of sales?
- **Insight:** It quickly highlights the most significant components of a financial statement. On an income statement, you can see which expenses consume the largest portion of revenue. On a balance sheet, you see where the company's assets are concentrated or what makes up the largest portion of its funding (liabilities vs. equity).
- **Benchmarking:** You can compare a company's vertical analysis percentages to industry averages or competitors to assess its relative performance and structure.
Frequently Asked Questions about Vertical Analysis
1. What is Vertical Analysis primarily used for?
It is primarily used for analyzing financial statements (Income Statement, Balance Sheet) to show the relative size of line items compared to a base figure (like Total Revenue or Total Assets).
2. What is the base figure for an Income Statement?
For an Income Statement, the base figure is almost always Total Revenue (or Net Sales).
3. What is the base figure for a Balance Sheet?
For a Balance Sheet, asset line items are compared to Total Assets. Liability and Equity line items are compared to Total Liabilities & Equity (which equals Total Assets).
4. How is Vertical Analysis different from Horizontal Analysis?
Vertical Analysis looks at the relationships *within* a single financial statement at a single point in time (or period) by using percentages of a base. Horizontal Analysis looks at trends *over time* by comparing line items across multiple periods (e.g., year-over-year growth).
5. Can Vertical Analysis be used for the Statement of Cash Flows?
Less commonly, but yes. Items on the Statement of Cash Flows can be shown as a percentage of Total Cash Inflows or Total Cash Outflows for that period, or sometimes as a percentage of Net Income.
6. What does a high percentage for a specific expense on an Income Statement indicate?
It indicates that a large portion of the company's revenue is being consumed by that particular expense. This could highlight an area of high cost or an area for potential cost savings.
7. What does a change in the percentage over time signify?
A change indicates a shift in the composition of the financial statement. For example, if Cost of Goods Sold increases from 30% to 40% of revenue over time, it suggests the company's cost to produce goods is increasing relative to its selling price.
8. Can I use Vertical Analysis for non-financial data?
Yes, the principle can be applied wherever you want to see the relative contribution of a part to a whole. For example, analyzing different product sales as a percentage of total sales, or different demographics as a percentage of total customers.
9. What if the Total or Base Figure is zero?
Vertical Analysis cannot be performed if the base figure is zero, as it would involve division by zero, resulting in an undefined percentage. The calculator should show an error in this case.
10. Is there a standard format for presenting Vertical Analysis?
Yes, financial statements are often presented with an extra column next to the dollar amounts showing the vertical analysis percentages. This is sometimes called a "Common-Size" financial statement.
