Vertical and horizontal analysis is a type of analysis used in corporate finance whose main objective is to analyze developments in companies’ balance sheets.
Vertical analysis seeks to identify the participation of each element in the whole, that is, the representativeness of a product, sector, category or vertical in relation to the general number.
Horizontal analysis, on the other hand, adds the temporal factor to the analysis, that is, it stops analyzing participation in relation to the whole and seeks to understand the evolution over time, whether in days, weeks, months or years.
Vertical analysis
As explained previously, vertical analysis is carried out within the same period of time, and its objective is therefore to identify the composition of the whole.
It is very useful in understanding industry email list representativeness and any metrics and variables can be explored, such as:
Revenue generated by different plans;
Product categories;
Regions of the country;
Traffic sources.
Check out a practical example. We are interested in obtaining the representation of each acquisition channel in relation to the requested demonstrations of our software.
We want to work with the representation in a specific month, in this case, January. A simple extraction of the leads generated by channel in a given month allows us to calculate the percentage of each channel compared to the whole, allowing us to find the representation of each channel.
Horizontal analysis
Horizontal analysis, on the other hand, does why build your environment not aim to understand participation as a whole, but rather the evolution of this participation over time.
It is therefore very useful when we want to understand how much the representativeness of a given metric has varied over time, as long as the desired period is standardized throughout the analysis. For example, we cannot compare daily representativeness against monthly representativeness. In this specific case, both columns must contain the daily or monthly information.
The same metrics and information can be email list analyzed. We just change the focus to time instead of the whole. As in the example above, we now want to identify the fluctuations in acquisition channels over the months.
Important: we can use a variation in relation to the previous period, generating a month-to-month analysis, for example, or in relation to the initial period, generating an evolution based on an index, as we call this type of base period definition. The index period is widely used in official statistics, such as calculating GDP, inflation rates, etc.
Vertical and horizontal analysis together
In this way, vertical and horizontal analyses must be combined, allowing an expansion of the understanding of the company’s scenario and facilitating the identification of root causes and consequently facilitating decision-making.