Vertical analysis, also known as common-sized statements, can be used by a good financial analyst to develop insights into the economic characteristics of different industries and of different firms in the same industry when building a financial model.
Look at the illustration below:
In Common-sized statements, various components of the financial statements are standardized by expressing them as a percentage of some base.
Examples of common-sized statements include:
- Components of the balance sheet expressed as a percentage of total assets
- Components of the income statement expressed as a percentage of sales
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