A vertical analysis shows each line of financial statements as a percentage of a base line item so that comparisons can be made. This free Excel calculator produces a vertical analysis of an income statement in relation to total revenue, and of a balance sheet in relation to total assets.
It is quite feasible for a business to show a healthy balance sheet and be profitable, but if it runs out of cash it will fail.
The balance sheet only shows the position at a particular point in time, and the income statement deals in profit not cash. The purpose of the business cash flow analysis is to correct this situation.
Income statement analysis can be carried out using ratios based on information contained within the income statement. Understanding how to read a income statement and regular monitoring of the income statement ratios provides owners and management with a useful tool to help them manage their business more effectively.
By analyzing the income statement a business is able to see how it is performing relative to earlier accounting periods, and how its performance compares to other businesses in the industry.
Balance sheet ratio analysis can be carried out using ratios based on information contained within the balance sheet. Knowing how to analyze a balance sheet gives the reader a better understanding of a business, allows changes over time to be monitored, and allows comparisons of different businesses to be made.
A common size income statement is one that has an additional column showing each monetary amount as a percentage of the total revenue of the business. The common size income statement is not required by Accounting Standards, and is used more as a management tool rather than a formal reporting document.
The accounting ratio calculator can be used by any business to calculate the most important accounting ratios.
Accounting ratios are used to analyse business trends and measure performance of both the business and the management. One accounting ratio viewed in isolation will not tell you a great deal about a business. The key with using accounting ratios is to consistently monitor the ratio over time relative to other ratios you have calculated.