When a financial statement analyst compares various figures on a company's income statement for a single year, and notes that a particular expense is 23% of sales, the analyst is performing
A) Vertical analysis
B) Horizontal analysis
C) Credit analysis
D) Solvency analysis

Question

Quizplus · Accepted Answer

The analyst is performing vertical analysis, which compares each line item on the income statement to a common base, such as revenue/sales. In this case, the particular expense is being compared to sales as a percentage, or ratio, which is a type of vertical analysis. Horizontal analysis, on the other hand, compares financial data over multiple periods (such as years) to analyze changes in performance. Credit analysis and solvency analysis are both different types of financial analysis that focus on a company's ability to meet its financial obligations and manage debt, respectively.

When a Financial Statement Analyst Compares Various Figures on a Company's