Vertical analysis is a powerful tool in financial analysis, enabling the comparison of different components of a financial statement through ratios. This technique is particularly common for examining how company expenses relate to revenue. For instance, it might reveal that leasing costs for the company headquarters constitute 1.5% of total revenue.
The real benefit of vertical analysis lies in its ability to provide a clear overview of how expenses are trending over time, either increasing or decreasing. This offers a concise snapshot of costs, pinpointing areas that might warrant further investigation.
In this article, we dive deeper into vertical analysis. We'll not only cover the basics but also guide you through its practical application in analyzing income statements. Plus, we'll explore its strategic significance for FP&A, demonstrating how it can be a valuable asset in financial planning and analysis.
Let's dive in.