Ratio, Vertical, and Horizontal Analyses

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Ratio, Vertical, and Horizontal Analyses The three most often used tools for evaluating financial statements are Horizontal analysis, Vertical analysis, and Ratio analysis. Horizontal (or trend) analysis is concentrated on evaluating financial statements for a certain time frame and is mainly used for the needs of the company. Vertical (or common-size) analysis is targeted on evaluating financial statements with assigning certain percent from the base amount to all the items in a financial statement, this is usually used for inter and intra company needs. Ratio analysis shows the correlation within certain figures of financial statements, for instance current assets and current liability, and this is used for three types of company needs within, intra, and inters company. Pepsi Co. The current ratio for 2005 The current ratio for 2005 is 1.11 The current ratio 2004 The current ratio for 2004 is 1.28 Two Vertical analyses: Two horizontal analyses: Current assets (2005) = 10,454 =121% or a 21% increase in assets from 2004 to 2005 Current assets (2004) = 8,639 Current Liabilities (2004) = 9,406 = 139% or a 39% increase in liability from 2004 to 2005 Current Liabilities (2005) =6,752 Coco-Cola Company Current ratio for 2005: Current ratio for 2004 Two vertical analyses: Two Horizontal analyses: Current assets (2005) =10,250 =83.5% or a 16% decrease from 2004 to 2005 Current assets (2004) 12,281 Current Liabilities (2004) =9,836 = 88.4% or a 16.5% decrease in liabilities from 2004 to 2005 Current Liabilities (2005)

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