Asked by Taylor Chisholm on Jun 13, 2024
Verified
What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analyses?
Horizontal Analysis
A financial analysis technique that evaluates changes in financial statement line items over a series of reporting periods.
Vertical Analysis
A method in financial accounting where each entry in a financial statement is listed as a percentage of a base figure, facilitating the comparison of financial statements over different periods.
- Evaluate the efficiency of a company's asset utilization and its impact on profitability.
Verified Answer
GM
gandharv madaanJun 17, 2024
Final Answer :
When percentages are utilized rather than dollars, companies that are not the same size can be compared. If Carbondale Chemicals is a $10 billion per year sales company and Heartland Chemicals is a $500 million per year sales company, these two companies can still be compared by using percentages determined by the analysis. These companies' results can also be compared to industry averages.
Learning Objectives
- Evaluate the efficiency of a company's asset utilization and its impact on profitability.
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