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Vertical Analysis of a Balance Sheet

Introduction: Vertical Analysis, is where you compare items on a statement to one number that represents the whole. The most common numbers used as the whole or total are total assets and/or total revenues. Each line item is divided by the total to arrive at a percentage that represents how much each item is in comparison to the complete amount. Think of it as slices in a pie. Each slice represents a percentage section of the whole pie. Example problem: Morrison Pet Supply Company Comparative Balance Sheet Vertical Analysis
Account Titles Assets Cash Accounts Receivables Prepaid Rent Inventory Supplies Land Building Accumulated Depreciation-Building Equipment Accumulated Depreciation-Equipment Total Assets Liabilities Notes Payable Accounts Payable Salaries & Wages Payable Unearned Pet Supplies Revenues Total Liabilities Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity 2013 10,000 6,200 3,500 8,000 500 25,000 15,000 (9,000) 9,000 (3,600) 64,600 9,000 4,000 1,200 250 14,450 33,000 17,150 50,150 64,600
Figure 1

Percent 15.5% 9.6% 5.4% 12.4% 0.8% 38.7% 23.2% (13.9%) 13.9% (5.6%) 100.0% 13.9% 6.2% 1.9% .4% 22.4% 51.5% 26.5% 77.6% 100.0%

2014 15,500 6,300 4,000 7,500 800 25,000 15,000 (12,000) 9,000 (5,400) 65,700 9,000 4,500 1,200 250 14,950 33,000 17,750 50,750 65,750

Percent 23.6% 9.6% 6.1% 11.4% 1.2% 38.1% 22.8% (18.3%) 13.7% (8.2%) 100.0% 13.7% 6.8% 1.8% .4% 22.8% 50.2% 27.0% 77.2% 100.0%

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Vertical Analysis of a Balance Sheet


Formula Morrison Pet Supply Company Comparative Balance Sheet Vertical Analysis
Account Titles Assets A 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Cash Accounts Receivables Prepaid Rent Inventory Supplies Land Building Accumulated Depreciation-Building Equipment Accumulated Depreciation-Equipment Total Assets Liabilities Notes Payable Accounts Payable Salaries & Wages Payable Unearned Pet Supplies Revenues Total Liabilities Stockholders Equity Common Stock Retained Earnings Total Stockholders Equity Total Liabilities and Stockholders Equity B 10,000 6,200 3,500 8,000 500 25,000 15,000 (9,000) 9,000 (3,600) 64,600 C D =B1/B11 =B2/B11 =B3/B11 =B4/B11 =B5/B11 =B6/B11 =B7/B11 =B8/B11 =B9/B11 =B10/B11 =B11/B11 =B13/B11 =B14/B11 =B15/B11 =B16/B11 =B17/B11 =B19/B11 =B20/B11 =B21/B11 =B22/B11 E 15,500 6,300 4,000 7,500 800 25,000 15,000 (12,000) 9,000 (5,400) 65,700 F G =E1/E11 =E2/E11 =E3/E11 =E4/E11 =E5/E11 =E6/E11 =E7/E11 =E8/E11 =E9/E11 =E10/E11 =E11/E11 E13/E11 E14/E11 E15/E11 E16/E11 E17/E11 =E19/E11 =E20/E11 =E21/E11 =E22/E11 2013 Percent 2014 Percent

9,000 4,000 1,200 250 14,450 33,000 17,150 50,150 64,600


Figure 2

9,000 4,500 1,200 250 14,950 33,000 17,750 50,750 65,750

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Vertical Analysis of a Balance Sheet


Instructions
Step 1. Place the three line header at the top of the page. (Company name, title of statement, and type of analysis) Step 2. Create the balance sheet with a column between each year for your percentages. Step 3. As shown in figure 2 divided each of the assets accounts amounts by the total assets amount then multiply the results by one hundred to get the percentage. Round to the nearest tenth of a percent, which means one place past the decimal point. Remember if 5 or above round up and if 4 or less drop. Example Cash/Total Assets = Percentage 10,000/64,600 = .1547987616 X 100 = 15.4787616 Rounded to 15.5% Step 4. As shown in figure 2 divided each of the liability account amounts by the total assets amount then multiply the results by one hundred to get the percentage. Round to the nearest tenth of a percent, which means one place past the decimal point. Remember if 5 or above round up and if 4 or less drop. Example Notes Payable/Total Assets = Percentage 9,000/64,600 = .1393188854 X 100 = 13.93188854 Rounded to 13.9% Step 5. As shown in figure 2 divided each of the Stockholders Equity account amounts by the total assets amount then multiply the results by one hundred to get the percentage. Round to the nearest tenth percent, which means one place past the decimal point. Remember if 5 or above round up and if 4 or less drop. Example Common Stock/ Total Assets = Percentage 33,000/64,600 = .7081545064 X 100 = 70.815454064 Rounded to 70.8%

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Vertical Analysis of a Balance Sheet


Note: for individuals using Excel look carefully at figure 2 and then create your own formulas to divide each cell by the total asset cell in order to get the percentage desired. Use the rounding method by right clicking and choosing format cell then click percentage on the numbers tab round to one decimal place.
For a presentation on the topic of Vertical Analysis of a Balance Sheet go to this web-link:

http://prezi.com/eye5uqperolz/financial-statement-analysis/

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