How Vertical and Horizontal Analysis Balance Sheet Differ?

Balance sheets are an important part of any organized and structured business. This is one of those final reports that shows if the business is experiencing any growth and how costs are distributed. In the end, this is the report used by management to determine if the business is moving in the right direction or if changes are necessary. One would assume that vertical and horizontal balance sheets have the same goal, but there are a few differences. A vertical or horizontal analysis balance sheet presents similar reports in a different manner. Each one is used in a unique way to report on the state of the business. Depending on which one is used, you could see actual figures or a percentage representation of the business’ financial position. Here are 7 ways these two analysis balance sheet differ.

1. Comparisons

With a horizontal balance sheet differ, the main objective is to compare figures from one year to another. In the case of a vertical balance sheet, it is mostly useful comparing the business financial state with that of another. It’s a great way to measure competition.

2. Calculations

There is also a difference in the calculations done on these balance sheets. With the horizontal balance it is based on a line structure calculated over some time. The vertical balance sheet calculates in a percentage form. The goal is the same, but the way in which it is expressed, differs.

3. Data

Companies have different needs and even though both balance sheets is necessary, it is often looked at when needed. Depending on what data needs to be extracted at the time, you would use either or. Horizontal balance sheet give you more in depth data, whereas a vertical balance sheet combined a lot of factors.

4. Reporting Dates

A vertical analysis of balance sheet will be handed out to management on an annual basis, whereas with the horizontal balance sheet, it is viewed monthly.

5. Auditors Signature

At the end of every financial year, auditors will sign off the financial statements. The vertical balance sheet is the one signed off as it is done so annually. The horizontal balance sheet is there for information and gives more information, but the vertical balance sheet gives a better overall view.

6. Years

Comparing more than one year will push you towards looking at a horizontal balance sheet. The vertical balance sheet only compares one year of data, but the horizontal balance sheet works over a period of two years.

7. Outlay

Based on the names of these two balance sheets, the easiest identifier would be the outlay and structure thereof. Even if you are not an accountant or an auditor, you can easily identify the difference balance sheets by the way it is composed and printed.

Conclusion

These two balance sheets might be seen as similar, but with so many differences, it’s easy to see that this is incorrect. When a company’s financial department want to analyse what the business is up to, they will extract the balance sheet more appropriate to answer any concerns.

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