A method of financial statement
analysis in which each entry for each of the
three major categories of accounts (assets,
liabilities and equities) in a balance sheet
is represented as a proportion of the total
account. The main advantages of analyzing a
balance sheet in this manner is that the
balance sheets of businesses of all sizes
can easily be compared. It also makes it
easy to see relative annual changes in one
business.
This method of analysis contrasts with
horizontal analysis, which uses one
year's worth of entries as a baseline while
every other year represents differences in
terms of changes to that baseline.
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