Which of the following is true of vertical analysis?
A) Vertical analysis is used to compare a balance sheet number from a previous period with an income statement number for the current period.
B) Vertical analysis is used to study only the income statement.
C) Vertical analysis is generally used to study both the income statement and the balance sheet.
D) Vertical analysis is used to study only the balance sheet.

Question

Quizplus · Accepted Answer

Vertical analysis is a method used in financial statement analysis where each entry for each of the three major categories of accounts (assets, liabilities, and equity) in a balance sheet or each account in an income statement is represented as a proportion of a total account. This allows for the analysis of relative changes over time or the relative composition of accounts at a point in time, making it applicable to both the income statement and the balance sheet.

Which of the Following Is True of Vertical Analysis