What is vertical analysis?
Vertical analysis creates common-size financial statements. Instead of comparing raw numbers, every line is expressed as a percentage of a single total.
- [Income statement](/glossary/income-statement): each line as a % of revenue.
- [Balance sheet](/glossary/balance-sheet): each line as a % of total assets (or total liabilities and equity).
Formula
Vertical % = Line item ÷ Base figure × 100
Example
- Revenue: $500,000 → 100%
- Cost of goods sold: $300,000 → 60%
- Gross profit: $200,000 → 40%
- Operating expenses: $140,000 → 28%
- Net income: $45,000 → 9%
If next year cost of goods sold rises to 65% of revenue, margins are being squeezed even if total profit grows.
Uses
- Compare businesses of different sizes
- Spot changes in cost structure over time
- Benchmark against industry averages
Vertical vs horizontal analysis
Horizontal analysis compares the same line across periods (for example, revenue grew 12%). Vertical analysis compares lines within a single period. Used together, they give a fuller picture.