Ratio Vertical and Horizontal Analyses

There are three tool in a financial statement, Ratio, Vertical, and Horizontal. Horizontal the first financial tool evaluates the performance of the company from period to period. Horizontal analysis can also be called trend analysis and is used to look over data over a period of time to determine if there were increases or decreases that has taken place. Horizontal analysis is used primarily in intercompany comparisons. Vertical analysis is the second tool used in a financial statement. Vertical analysis can also be called common-size analysis. This tool is used to express each financial statement item as a percent of a base amount. Vertical analysis shows the relative size of each category in the balance sheet. Ratio analysis expresses the relationship among selected items of a financial statement data. Both external and internal will use this tool in determining the growth of the company.

Pepsi Co

2005 Ratio 2004 Ratio

Current Assets $10,454 Current Assets $8,639

Current Liabilities $9,406 Current Liabilities $6,752

Divide 10,454 by 9,406 = 1.11% Divide 8,639 by 6,752 = 1.28%

2005 Vertical 2004 Vertical

Current Assets $10,454 Current Assets $ 8,639

Total Assets $31,727 Total Assets $27,987

Divide 10,454 by 31,727 = 32.9% Divide 8,639 by 27,987 = 30.9%

Horizontal

Current 2005 Assets $10,454 Current