Question

Using the following to create a vertical analysis, what percentage would be reported for Property, Plant & Equipment?

2015 2014

Common Stock $ 300,000 $220,000

Current Assets $ 100,000 $110000

Current Liabilities $ 50,000 $90,000

Intangible Assets $ 120,000 $130,000

Investments $ 200,000 $200,000

Long-term Liabilities $ 250,000 $275,000

Other Assets $ 80,000 $75,000

Property, Plant & Equipment $ 300,000 $250,000

Retained Earnings $ 200,000 $ 180,000

Answer 1

Solution:

In vertical analysis each item of the financial statement is shown in percentage of base figure. Base figure can be any item depending on the statement on which vertical analysis is done. It is also known as common size analysis.

In the given case we are going to do vertical analysis of a balance sheet.

Steps:

1. Prepare a Simple format balance sheet from the given data.( Much detailed balance sheet is not required)

2. Calculate Vertical analysis of each item and mark it in cell next to that particular item.

Percentage reported for Property, plant & Equipment is 38 % for year 2015 and 33% for year 2014.

Workings:

Property plant & Equipment

Year 2015 = ($300,000/ $800,000) X 100 = 38%

Year 2014= ($250,000/$ 765,000) X 100 = 33 %

As we can see Share of Property, plant & equipment is increased from 33% to 38%.

Table showing vertical analysis for year 2015 & 2014.

Assets	2015	Vertical Analysis 2015 % **	2014	Vertical Analysis 2014 % **
Property, Plant & Equipment	300,000	38%	250,000	33%
Current Assets	100,000	13%	110,000	14%
Intangible Assets	120,000	15%	130,000	17%
Investments	200,000	25%	200,000	26%
Other Assets	80,000	10%	75,000	10%
Total	800,000	100%	765,000	100%
Liabilities & Equity	2015	Vertical Analysis 2015 % **	2014	Vertical Analysis 2014 % **
Current Liabilities	50,000	6%	90,000	12%
Long Term Liabilities	250,000	31%	275,000	36%
Common Stock	300,000	38%	220,000	29%
Retained Earnings	200,000	25%	180,000	24%
Total Liabilities & Equity	800,000	100%	765,000	100%

**Please note here that percentage are rounded off to nearest whole number for easement of comparing.

Notes:

As we can see from the above analysis , share of all the assets except Property, plant & Equipment has reduced.

Share of Other assets remain unchanged at 10 %.

On the liabilities side Share of common stock and Retained earnings has increased while share of current & long term liabilities has decreased.

Some of the takeaways:

• Vertical analysis is meaningful when multiple years data is compared .
• It is one of the financial analysis which is easy to compute. It helps to compare with previous year data. It is also used to compare different organisations.
• It helps in ascertaining the share of individual items.
• However vertical analysis does not give a clear picture about the liquidity position of the organisation

Please feel free to ask for any clarifications.