Financial analysis method | Business & Finance homework help
Financial analysis methods involve the evaluation of a company’s financial performance and position through metrics such as ratios, trend analyses, and other comparative measures. Two common methods of financial analysis are vertical and horizontal analysis.
Vertical Analysis is a process whereby each line item on a financial statement is expressed as a percentage of the base figure for that respective statement. This type of analysis allows investors to evaluate the relative importance of each item on the balance sheet or income statement by comparing them side-by-side in relation to their total value.
Horizontal Analysis takes into account changes over time in specific accounts on both the balance sheet and income statement, with figures being compared between multiple periods so that trends can be observed or problems identified. This method allows investors to identify any anomalies or changes in bills receivable/payable, inventory levels etc., as well as spot deviations from expected sales revenue forecasts easily when looking at same figure across different years .
Both these analyses provide valuable insight into how businesses operate enabling stakeholders detect issues early assess potential risks before they become major sources concern ultimately strengthening overall sustainability enterprise concerned