To understand the components of a company's profitability, an analyst may compute the ratio of each major expense classification to total sales. This type of analysis is known as:

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Vertical analysis is a technique used to analyze financial statements. It involves the computation of the percentage relationship between each line item in the financial statement to the total of the statement. In this case, computing the ratio of each major expense classification to total sales is an example of vertical analysis as it helps in understanding a company's profitability by analyzing the percentage relationship between different expense categories and total sales.

To Understand the Components of a Company's Profitability, an Analyst