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There Are 2 Basic Financial Statement Analysis Techniques

Basic financial reports also have shortcomings, which cannot be used as a benchmark because they do not incorporate trends in the industry, and the decline in general economic conditions. In fact, these two things must be considered by business people because it will affect the company’s performance. Meanwhile, before we continue, we suggest you call the best expert of MYOB Parramatta if you need the most accurate bookkeeper who can help your company.

There are two basic analyses of financial statements used by most companies, they are horizontal and vertical which will be explained in this article.

1. Analysis of horizontal financial statements

Horizontal financial statement analysis is the percentage increase and decrease in related items in the comparative financial statements. The amount of each item in the latest financial statement will be compared with other items related to one or more previous periods.

Horizontal analysis can compare two financial statements. In this case, the previous reporting period is used as a basis. A horizontal financial statement analysis can also compare three or more financial statements.

In this case, an earlier date or period can be used as a basis for comparison to all previous dates or periods. Here are some items that are counted in the horizontal financial statements:

– Comparative balance sheets that provide a significant picture of ups and downs in financial statement items.
– A comparative table of current assets that shows changes in credit terms or improvements to billing policies.
– Comparative profit / loss statement that shows an increase in net sales.

2. Analysis of vertical financial statements

This one analysis uses percentages to show the relationship of each component to the total in one report. Like horizontal financial statement analysis, this report can be prepared in a detailed or concise format.

In a short format, additional details of the changes in individual posts can be presented in a supporting table. Percentage analysis of the data can be made based on the total amount in the table and the total amount in the financial statements.

Although vertical analysis is limited to individual reports, the significance of the analysis can be increased by preparing comparative reports. In a vertical analysis of the balance sheet, each item of assets is stated as a percentage of total liabilities and shareholder equity.