Vertical Analysis
Definition
Expressing each line of a financial statement as a percentage of a base figure — revenue for the income statement, total assets for the balance sheet — to compare structure across periods or businesses of different sizes.
Related Terms in Financial Analysis
Common-Size Financial Statements
Statements where every line is shown as a percentage of a base amount, making it easy to compare companies of very different sizes or to track how a cost structure shifts over time.
Net Present Value (NPV)
The value today of a project's expected future cash flows, discounted at a required rate of return, less the initial investment. A positive NPV means the project is expected to add value.
Internal Rate of Return (IRR)
The discount rate at which a project's net present value is zero — effectively its expected percentage return. A project is generally attractive when its IRR exceeds the required rate of return.
Payback Period
The time it takes for a project's cash inflows to recover the initial investment. It is simple and widely used but ignores cash flows after payback and the time value of money.
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