Vertical Analysis Of Financial Accounting

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(a) Analysis of financial statements is considered to be an effective tool for analyzing the operating and financial performance of an organization. The analysis of financial statements is useful for taking practical economic decisions by various users. There are different types of tools available for the analysis of the performance of an organization. However, the horizontal and vertical analysis is a very widely used technique for developing a better understanding of financial strengths and weakness of an organization. For the purpose of this assignment, as a Financial Analyst for Middle East Venture Capital LLC, I have chosen Oman Fisheries Co. S.A.O.G. The financial statements from 2014 to 2016 have been used for making a horizontal and…show more content…
Under this form of comparative financial statements, both the comparative income statement and comparative Balance sheet are covered. Such comparative statements are prepared not only to the comparison of the various figures of two or more periods but also the relationship between various elements embodied in profit and loss account and balance sheet. It enables to measure operational efficiency and financial soundness of the concern for analysis and interpretations. Horizontal analysis refers to the comparison of financial data of a company for several years. The figures of this type analysis are presented horizontally over a number of columns. The figures of the variously years are compared with standard or base year. A base year is a year chosen as a beginning point. It is also called ‘Dynamic Analysis’. This analysis makes it possible to focus attention on items that have changed significantly during the period under review. Comparative statements and trend percentages are two tools employed in the horizontal…show more content…
Under this type of analysis, a number of ratios used for measuring the meaningful quantitative relationship between the items of financial statements during the particular period. This type of analysis is useful in comparing the performance, efficiency, and profitability of several companies in the same group or divisions in the same company. In order to avoid the limitations of Comparative Statement, this type of analysis is designed. Under this method, financial statements are analyzed to measure the relationship of various figures with some common base. Accordingly, while preparing the Common Size income statement, total sales is taken as a common base and other items are expressed as a percentage of sales. Like this, in order to prepare the Common Size Balance Sheet, the total assets or total liabilities are taken as a common base and all other items are expressed as a percentage of total assets and
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