Homework Answers
- Vertical Analysis can only be done once the balance sheet is tallied i.e., Assets = Liabilities + Shareholder's / Stockholder's Equity.
- It is also known as Common size analysis. To do the Vertical Analysis Total Assets (Sum of all the Assets) and Total Liabilities (Sum of all the liabilities + Stockholder's Equity) are used as based figures which is 100%.
- Assets includes : Fixed Assets; Current Assets- Bank Balance, Sundry Debtors, Prepaid Expenses, Long Term and Short Term Investments; Intangible Assets.
- Liabilities includes: Current Liabilities - Sundry creditors, Provisional expenses (Accrual Expenses); Short term and Long Term Loans payable
- Stockholder's equity includes: Common Stock, Preferred Stock, Retained Earnings.
- Let us take the below example:
| Particulars | Amount ($) | Percentage (%) |
| Assets | ||
| Fixed Assets | ||
| Land and Building | 750 | 33% |
| Furniture and Fixtures | 350 | 16% |
| Plant and Machinery | 500 | 22% |
| Vehicles | 25 | 1% |
| Total Fixed Assets (A) | 1,625 | 72% |
| Current Assets | ||
| Sundry Debtors | 250 | 11% |
| Inventory | 125 | 6% |
| Cash/ Bank Balance | 150 | 7% |
| Prepaid Expenses | 50 | 2% |
| Short / Long Term Investments | 50 | 2% |
| Total Current Assets (B) | 625 | 28% |
| Total Assets (A+B) | 2,250 | 100% |
| Liabilities | ||
| Current Liabilities | ||
| Sundry Creditors | 750 | 33% |
| Accrued Expenses | 250 | 11% |
| Short/ Long Term Loans payable | 500 | 22% |
| Total Liabilities (C) | 1,500 | 67% |
| Stockholder's Equity | ||
| Common Stock | 350 | 16% |
| Preferred Stock | 150 | 7% |
| Retained Earnings | 250 | 11% |
| Total Stockholder's Equity (D) | 750 | 33% |
| Total Liabilities and Stockholder's Equity (C+D) | 2,250 | 100% |
Calculations:-
- Land and Building - (750 / 2,250) * 100% = 33%
- Furniture and Fixtures - (350 / 2,250) * 100% = 16%
- Plant and Machinery - (500 / 2,250) *100% = 22%
- Vehicles - (25 / 2,250) *100% = 1%
- Sundry Debtors - (250 / 2,250) *100% = 11%
- Inventory - (125 / 2,250) *100% = 6%
- Cash/ Bank Balance - (150 / 2,250) *100% = 7%
- Prepaid Expenses -(50 / 2,250) *100% =2%
- Short / Long Term Investments - (50 / 2,250) *100% =2%
- Sundry Creditors - (750 / 2,250) * 100% = 33%
- Accrued Expenses - (250 / 2,250) * 100% = 11%
- Short/ Long Term Loans payable - (500 / 2,250) * 100% = 22%
- Common Stock - (350 / 2,250) * 100% = 16%
- Preferred Stock - (150 / 2,250) * 100% = 7%
- Retained Earnings - (250 / 2,250) * 100% = 11%
Hence, Vertical Analysis of a balance sheet usually calculates each balance sheet line items as a percentage of Total Assets (funds).
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