Horizontal Analysis

The analysis of articles in the balance sheet is carried out with the purpose to characterize the property structure of the company and the sources of its financing. Methods for evaluating the reporting document can be chosen different.

So, for example, the vertical analysis reflects the structure of the company's funds, their sources. Vertical analysis allows for relative assessments. These estimates, in turn, provide an opportunity to compare the economic performance of companies that differ in terms of the resources used, to mitigate the impact of inflationary processes that distort absolute values in financial reporting.

The vertical analysis is carried out in accordance with the scheme. First of all, the shares of current and permanent assets are determined as a result of the reporting, after they consider their structure, they reveal the share of invested funds and current liabilities and their structure. Then determine the reasons for the changes in the reporting.

Horizontal analysis is a method for assessing reporting, which involves the construction of several (or one) analytical tables. In these constructions, the absolute values are supplemented by the relative rates of decline (growth).

Horizontal analysis is more convenient to implement using an analytical table that contains values such as the indicator of the liability (asset) at the end and beginning of the year in money and percentages to the total, changes in the size of liabilities (assets) in money, percents and densities. When the dynamics presented in the documents cover the time interval of more than a year, the calculation of the baseline rates is carried out for several adjacent periods (years). Thus, horizontal analysis allows us to evaluate not only changes in individual indicators, but also to predict their significance.

Vertical evaluation makes it possible to pay attention to the elements that have the largest specific gravity. Horizontal analysis allows you to focus on those components, the proportion of which varies in leaps and bounds. Both these and other components are to some extent indicators of problem areas of the enterprise. Use only horizontal analysis is often impractical. To reflect the full picture, both methods are often used in the complex.

Thus, the horizontal and vertical analysis of the balance sheet are closely interrelated.

It should be noted that both approaches are of particular value in conducting inter-farm comparisons, comparing the reporting of different enterprises on production volumes and activities.

There is also a coefficient method of economic evaluation. It is a set of relative values that are determined according to the data of the accounting report, mainly from data on losses and profits. Coefficients are used in accordance with the theory, which provides a certain correlation between specific articles in the report. Preferred values will depend on the industry's features of production, their size, which is usually estimated by sales for the year or the average annual price of assets. These indicators can affect the state of the economy as a whole and the phase of the economic cycle. Calculation of the coefficients is carried out according to the reports, which are translated into the analytical form.

As a supplement to this approach, the factor method is used. This method allows you to establish changes in the resulting characteristic that occurred under the influence of certain factors that have, presumably, a quantitative effect. With the help of deterministic models , a functional connection between the arguments (factors) and the function (the resultant indicator) is investigated.