Vertical (common-size) analysis of financial statements

By: Rashid Javed | Updated on: October 26th, 2021

Vertical analysis (also known as common-size analysis) is a popular method of financial statement analysis that shows each item on a statement as a percentage of a base figure within the statement.

To conduct a vertical analysis of balance sheet, the total of assets and the total of liabilities and stockholders’ equity are generally used as base figures. All individual assets (or groups of assets if condensed form balance sheet is used) are shown as a percentage of total assets. The current liabilities, long term debts and equities are shown as a percentage of the total liabilities and stockholders’ equity.

To conduct a vertical analysis of income statement, sales figure is generally used as the base and all other components of income statement like cost of sales, gross profit, operating expenses, income tax, and net income etc. are shown as a percentage of sales.

In a vertical analysis, the percentage is computed by using the following formula:

Percentage of base = (Amount of individual item/Amount of base item) × 100

A basic vertical analysis needs an individual statement for a reporting period but comparative statements may be prepared to enhance the usefulness of analysis.


An example of the vertical analysis of balance sheet and income statement is given below:

Comparative balance sheet with vertical analysis:

*Current assets:

2018: (550,000/1,139,500) × 100 = 48.3%
2017: (530,000/1,230,500) × 100 = 43.3%

Comparative income statement with vertical analysis:

*Cost of goods sold:

2018: (1,043,000/1,498,000) × 100 = 69.6%
2017: (820,000/1200,000) × 100 = 68.3%

Vertical analysis states financial statements in a comparable common-size format (i.e., percentage form). One of the advantages of common-size analysis is that it can be used for inter-company comparison of enterprises with different sizes because all items are expressed as a percentage of some common number.

For example, suppose company A and company B belong to same industry. A is a small company and B is a large company. Company A’s sales and gross profit are $100,000 and $30,000 respectively whereas company B’s sales and gross profit are $1,000,000 and $300,000 respectively. If vertical analysis is conducted and sales figure is used as base, it would show a gross profit percentage of 30% for both the companies as shown below:

45 Comments on Vertical (common-size) analysis of financial statements
  1. Rana

    Thank you for the very useful services you are providing, it is really appreciable.

  2. Accounting for Management

    Your are welcome.

  3. Masters in Commerce

    You have presented the horizontal analysis of current assets section and statement of retained earnings on horizontal analysis page. But on this page you have not given the vertical analysis of current assets section and the statement of retained earnings.

    Also I cannot find any exercise or problem about vertical analysis in exercises and problems section of your website. Are you still preparing it?

  4. Accounting for Management

    We are working, will be available soon. Please check back again in a month.

  5. shan burton

    This was tremendously helpful. Looking forward to more. Thank you.

  6. Bob

    Very helpful. What do you do for cashflow statements vertical analysis?

  7. Zeest

    What are some advantages and disadvantages of this analysis technique? Thanks in advance.

  8. Meze

    Thanks. Very useful

  9. rachel

    My exam is in 2 days and i was looking for a formula to solve vertical analysis and this information is so useful and helped me to understand more. Thank you so much!!

  10. Mackline

    Totally helpful. looking forward for more insights.

  11. Amudha


  12. leona

    Much more clearly laid out than any of my textbooks. This made it simple to understand and remember. Thank you!!!

  13. Robbie

    Thank you! So helpful! Sooo much easier to comprehend than my textbook!

  14. Amgd hamdy

    Thank you for this useful info. It is my first participation in this website but will not be the last one 🙂

  15. H.farhan

    How can I calculate the vertical analysis for ratios?! What would be my base

  16. Mahendra

    It was very informative, thanks

  17. mj

    it is useful information with horizontal format but please update this article along with vertical format because it’s new corporate trend of presenting accounting statement ..

  18. sadil

    thnx a lot 4 sharing useful infos and rendering apreciable sevices keep it up…… stay bless

  19. khushdeep arora

    It was very informative, thanks

  20. allyza

    Was the Sales are always a 100%? In Statement of Income. What formula will be used as the based year? The Total assets or the Sales? In horizontal analysis if the given problem was from Year 1-5 (multiple year)??

    1. NYrah

      Yes it is always 100%,definitely the sales will be used in the income statement.

  21. allyza

    What if the problem are comparing more than 2 years? If it was a multiple years comparison using the horizontal analysis in Statement of Income? How come? What formula will I’ll be using to this?

    1. anju

      if more than one year data is compared then the base year is specified in the question

  22. pogi

    it is very heplful , thank you so much 🙂

  23. Wahid Safi

    It is very helpful,and really help me,the way utilized for BBA lecture course.

    1. Younis Amani

      Salam Mr. Safi,
      Where do/did you study accounting?

  24. ayush

    i tried every where from thi i got clear information its very helpfull to me

  25. chai

    Thanks a lot.. your website is very
    helpful. Godbless.

  26. Loretta

    Thank you so much for this information. Its very helpful

  27. zara shahid

    you guys are the best. God bless.

  28. melina ferrao

    how to do comparative balance sheet when 3 years information is given ..

  29. himani

    can we solve common size statements sum by only one year detail if yes how?

  30. sam

    Your were born a teacher,precise and exact .

  31. Biaa

    What about vertical analysis of cash flow statement?

  32. kay

    Thanks a lot, this made its easy to understand and very helpful.

    The example of comparative balance sheet December 31, 2008 & 2007.
    In 2007 figure of total stock holders’ equity is $787,500 but my total is $823,500 (which preferred 6% stock $150,000,
    common stock $500,000, retained earnings $173,500). How total is a $787,500?
    Could you explain about this?

    1. kay

      I found, should retained earnings figure is a $137,500 NOT $173,500

  33. LJ

    Your explanation and examples are very helpful. Thank you so much!

  34. ila

    Thank you. Very helpful.

  35. Sridhara

    Pls send the interpretation of the common size balance sheet

  36. owen

    hey MISS or BRO ,can you help me to comment on the vertical common-size analysis ? very appreciate…

  37. Ella

    How do we interpret on the vertical analysis???

  38. Natulinda Brian

    Thanks alot for sharing. Hope to see more and emerging standards set for them

  39. marlyn agayso

    what if the given problem is perform a vertical analysison the financial statemet but there is no sales? like for example:
    net sales in 2020 amount 800 and percent is blank 2019 amount 700 percent blank
    cost odf good sold 2020 amount blank percent blank 2019 amount (320) percent blank.. its like that..
    hoping for ur response.

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