Vertical Analysis of a Balance Sheet

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Introduction: Vertical Analysis, is where you compare items on a statement to

one number that represents the whole. The most common numbers used as the

whole or total are total assets and/or total revenues.

Each line item is divided by the total to arrive at a percentage that represents how

much each item is in comparison to the complete amount. Think of it as slices in a

pie. Each slice represents a percentage section of the whole pie.

Example problem:

Morrison Pet Supply Company Comparative Balance Sheet

Vertical Analysis Account Titles 2013 Percent 2014 Percent

Assets

Cash 10,000 15.5% 15,500 23.6%

Accounts Receivables 6,200 9.6% 6,300 9.6%

Prepaid Rent 3,500 5.4% 4,000 6.1%

Inventory 8,000 12.4% 7,500 11.4%

Supplies 500 0.8% 800 1.2%

Land 25,000 38.7% 25,000 38.1%

Building 15,000 23.2% 15,000 22.8%

Accumulated Depreciation-Building (9,000) (13.9%) (12,000) (18.3%)

Equipment 9,000 13.9% 9,000 13.7%

Accumulated Depreciation-Equipment (3,600) (5.6%) (5,400) (8.2%)

Total Assets 64,600 100.0% 65,700 100.0%

Liabilities

Notes Payable 9,000 13.9% 9,000 13.7%

Accounts Payable 4,000 6.2% 4,500 6.8%

Salaries & Wages Payable 1,200 1.9% 1,200 1.8%

Unearned Pet Supplies Revenues 250 .4% 250 .4%

Total Liabilities 14,450 22.4% 14,950 22.8%

Stockholders’ Equity

Common Stock 33,000 51.5% 33,000 50.2%

Retained Earnings 17,150 26.5% 17,750 27.0%

Total Stockholders’ Equity 50,150 77.6% 50,750 77.2%

Total Liabilities and Stockholders’ Equity 64,600 100.0% 65,750 100.0%

Figure 1

Vertical Analysis of a Balance Sheet

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Formula

Morrison Pet Supply Company

Comparative Balance Sheet Vertical Analysis Account Titles 2013 Percent 2014 Percent

Assets

A B C D E F G

1 Cash 10,000 =B1/B11 15,500 =E1/E11

2 Accounts Receivables 6,200 =B2/B11 6,300 =E2/E11

3 Prepaid Rent 3,500 =B3/B11 4,000 =E3/E11

4 Inventory 8,000 =B4/B11 7,500 =E4/E11

5 Supplies 500 =B5/B11 800 =E5/E11

6 Land 25,000 =B6/B11 25,000 =E6/E11

7 Building 15,000 =B7/B11 15,000 =E7/E11

8 Accumulated Depreciation-Building (9,000) =B8/B11 (12,000) =E8/E11

9 Equipment 9,000 =B9/B11 9,000 =E9/E11

10 Accumulated Depreciation-Equipment (3,600) =B10/B11 (5,400) =E10/E11

11 Total Assets 64,600 =B11/B11 65,700 =E11/E11

12 Liabilities

13 Notes Payable 9,000 =B13/B11 9,000 E13/E11

14 Accounts Payable 4,000 =B14/B11 4,500 E14/E11

15 Salaries & Wages Payable 1,200 =B15/B11 1,200 E15/E11

16 Unearned Pet Supplies Revenues 250 =B16/B11 250 E16/E11

17 Total Liabilities 14,450 =B17/B11 14,950 E17/E11

18 Stockholders’ Equity

19 Common Stock 33,000 =B19/B11 33,000 =E19/E11

20 Retained Earnings 17,150 =B20/B11 17,750 =E20/E11

21 Total Stockholders’ Equity 50,150 =B21/B11 50,750 =E21/E11

22 Total Liabilities and Stockholders’ Equity 64,600 =B22/B11 65,750 =E22/E11

Figure 2

Vertical Analysis of a Balance Sheet

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Instructions

Step 1. Place the three line header at the top of the page. (Company name, title of statement,

and type of analysis)

Step 2. Create the balance sheet with a column between each year for your percentages.

Step 3. As shown in figure 2 divided each of the assets accounts amounts by the total assets

amount then multiply the results by one hundred to get the percentage. Round to the

nearest tenth of a percent, which means one place past the decimal point. Remember if

5 or above round up and if 4 or less drop.

Example

Cash/Total Assets = Percentage

10,000/64,600 = .1547987616 X 100 = 15.4787616 Rounded to 15.5%

Step 4. As shown in figure 2 divided each of the liability account amounts by the total assets

amount then multiply the results by one hundred to get the percentage. Round to the

nearest tenth of a percent, which means one place past the decimal point. Remember if

5 or above round up and if 4 or less drop.

Example

Notes Payable/Total Assets = Percentage

9,000/64,600 = .1393188854 X 100 = 13.93188854 Rounded to 13.9%

Step 5. As shown in figure 2 divided each of the Stockholders’ Equity account amounts by the

total assets amount then multiply the results by one hundred to get the percentage.

Round to the nearest tenth percent, which means one place past the decimal point.

Remember if 5 or above round up and if 4 or less drop.

Example

Common Stock/ Total Assets = Percentage

33,000/64,600 = .7081545064 X 100 = 70.815454064 Rounded to 70.8%

Vertical Analysis of a Balance Sheet

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Note: for individuals using Excel look carefully at figure 2 and then create your own formulas to

divide each cell by the total asset cell in order to get the percentage desired. Use the

rounding method by right clicking and choosing format cell then click percentage on the

number’s tab round to one decimal place.

For a presentation on the topic of “Vertical Analysis of a Balance Sheet” go to this web-link:

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