Financial Performance: Vertical and Horizontal Analysis

The financial analysis has 2 tools that allow you to measure and guide the financial performance focused on increasing the company's performance (utility) like this:

Vertical Analysis

It is a static analysis, because it studies the financial situation at a given time and allows, among other things, to see the ability of the company to deal with bank obligations in the short term (liquidity).

It is a financial tool that allows to verify if the company has an adequate distribution of its assets and if it is making use of the debt of due form, taking into account the financial and operative necessities of the same one.

To achieve this, divide the account to be determined, by the total of the related account and then multiply by 100, finding a relation.

It is a financial tool that allows to determine if the behavior of the company in a period was good, regular or bad.

Horizontal Analysis

It is necessary to have financial statements of two different periods, that is, they must be comparative; As it seeks to compare one period with another to observe the behavior of the financial statements in the period under analysis.

Its purpose is to determine that each percentage represents each account of the asset or liability within the total or subtotal of its related account.

The method is to take a single financial statement and relate each of your accounts or subaccounts with a given total within the same state.

The vertical analysis of a financial statement makes it possible to clearly identify how the company is composed.

Its objective is to determine the absolute or relative variation that each item of the financial statements has suffered in one period with respect to another, Determining which fuel the growth or decrease of an account in a determined period. Once the variations have been determined, the causes of these variations and the possible consequences thereof must be determined.

The values ​​obtained in the horizontal analysis can be compared with the growth and performance goals set by the company to evaluate the efficiency and effectiveness of management in the management of resources; So it is very useful to make projections and set new goals.

The horizontal analysis must be complemented by the vertical analysis and the different Financial Indicators and / or Financial Reasons, in order to arrive at a conclusion that is close to the financial reality of the company, so that we can make better decisions to respond to that reality