Métodos de Análisis Vertical y Horizontal (Interpretación) | Estados Financieros - Francesc Silva

Introduction

This tutorial provides a comprehensive guide to understanding and applying vertical and horizontal analysis methods for financial statements. These techniques are essential for interpreting financial data, allowing you to evaluate an organization’s performance over time and in relation to other entities.

Step 1: Understanding Vertical Analysis

Vertical analysis involves analyzing financial statements by expressing each line item as a percentage of a base figure. This method is particularly useful for comparing financial statements within a single period.

• Identify the Base Figure:

  • For the income statement, use total revenue as the base.
  • For the balance sheet, use total assets as the base.

• Calculate Percentages:

  • Use the formula:

    Percentage = (Line Item / Base Figure) * 100
    

  • Example: If total revenue is $100,000 and a specific expense is $25,000, the calculation would be:

    (25,000 / 100,000) * 100 = 25%
    

• Practical Tip: Utilize vertical analysis to quickly identify which expenses take up the largest percentage of revenue and assess operational efficiency.

Step 2: Implementing Horizontal Analysis

Horizontal analysis focuses on comparing financial data across multiple periods to identify trends, growth patterns, or declines.

• Select Financial Statements: Choose the income statement and/or balance sheet for multiple periods (e.g., 3-5 years).

• Calculate Changes:

  • For each line item, determine the absolute change and the percentage change using:

    Absolute Change = Current Year Amount - Previous Year Amount
    Percentage Change = (Absolute Change / Previous Year Amount) * 100
    

  • Example: If last year’s sales were $80,000 and this year’s sales are $100,000:

    Absolute Change = 100,000 - 80,000 = 20,000
    Percentage Change = (20,000 / 80,000) * 100 = 25%
    

• Practical Tip: Look for consistent growth patterns or significant fluctuations in key areas like revenue and expenses to understand business dynamics.

Step 3: Interpreting the Results

Interpretation of the results from vertical and horizontal analyses is crucial for decision-making.

• Findings from Vertical Analysis:

  • Identify major expense categories and their proportions relative to total revenue.
  • Assess if any categories are unusually high or low compared to industry standards.

• Findings from Horizontal Analysis:

  • Look for trends over time; consistent growth may indicate business health, while significant declines warrant further investigation.
  • Consider external factors that might influence these changes, such as market conditions or operational adjustments.

Conclusion

Vertical and horizontal analyses are powerful tools for financial analysis. By applying these methods, you can gain deeper insights into financial statements, assess performance trends, and make informed strategic decisions. As a next step, consider practicing these analyses on real financial statements of companies you are interested in to reinforce your understanding.