Financial analysis is an integral part of any company’s economic strategy. Shedding light on both financial opportunities and the factors that inhibit a company’s performance in a particular market, a financial analysis creates extensive opportunities for getting the priorities straight and using available assets to a firm’s advantage. While the horizontal and vertical analysis types are often juxtaposed, they, in fact, are the constituents of a single entity.
Indeed, a closer look at the horizontal and vertical analysis types will shows that they complement each other. Offering companies a chance to explore their performance both in the context of their unique history and the contemporary market, each framework delivers the results that inform a company’s further financial strategy. As a result, a comprehensive assessment of the threats and opportunities that are open to an organization becomes a possibility (Vallabhaneni, 2015).
Furthermore, selecting the base year when performing either vertical or horizontal analysis hinges on the goals thereof. For example, in the scenarios that involve rebranding a product or introducing a new brand to a specific audience, one may consider selecting the last year before the alterations as the base year for the analysis (Beecken & Beecken, 2017).
Moreover, the interpretations of the analysis results will require extra data. Like many other analytical tools, horizontal and vertical types of financial statement analysis cannot be studied outside of the context in which they are performed. Hence, considering the performance of competitors, the characteristics of the selected industry, the demands of target customers, etc., must be recognized as a necessity.
Vertical and horizontal types of financial statement analysis must become integral parts of any company’s financial operations. The specified strategies help identify necessary changes to a firm’s financial policy. Thus, both frameworks need to be included in the corporate setting.
References
Beecken, W. H., & Beecken, C. A. (2017). Fraud examination casebook with documents: A hands-on approach. New York, NY: John Wiley & Sons.
Vallabhaneni, S. R. (2015). Wiley CIAexcel Exam review 2015 focus notes, part 3: Internal audit knowledge elements. New York, NY: John Wiley & Sons.