Vertical analysis
In one sentenceTurning each item in a financial statement into a percentage of a base figure in it, such as net sales in the income statement or total assets in the statement of financial position.
Simply put
Instead of reading figures in SAR you read percentages: how much of each riyal of sales the cost of goods takes, how much salaries take, and how much is left as profit.
It helps you compare your business with a larger or smaller one, or compare two branches of different sizes, because percentages remove the effect of size.
Worked example
A building materials business has net sales of 2,000,000 SAR, cost of sales of 1,300,000 SAR, other expenses of 400,000 SAR, and a net profit of 300,000 SAR.
Net sales (the base)100%
Cost of sales = 1,300,000 ÷ 2,000,00065%
Other expenses = 400,000 ÷ 2,000,00020%
Net profit = 300,000 ÷ 2,000,00015%
Formula: Item value ÷ base figure in the statement × 100%
Don't confuse it with
Horizontal analysisVertical analysis is a picture of one year, and horizontal analysis measures the change between two years.