Analysis of items in the balance sheetis carried out with the purpose to characterize the property structure of the company and the sources of its financing. Methods of evaluation of the report document can be chosen different.
For example, vertical analysis reflectsstructure of company funds, their sources. Vertical analysis allows for relative estimates. These estimates, in turn, provide an opportunity to compare the economic performance of companies that differ in the amount of resources used, to mitigate the impact of inflationary processes that distort absolute values in financial reporting.
The vertical analysis is carried out inaccording to the scheme. First of all, the shares of current and permanent assets are determined as a result of reporting, after they consider their structure, they reveal the share of invested funds and current liabilities and their structure. Then determine the reasons for the changes in the reporting.
The horizontal analysis is a method of an estimationreporting, which involves the construction of several (or one) analytical tables. In these constructions, absolute values are supplemented by relative rates of decline (growth).
Horizontal analysis is more convenient to carry outusing an analytical table that contains values such as the indicator of the liability (asset) at the end and beginning of the year in money and percentages to the total, changes in the size of liabilities (assets) in money, percents and specific weights. When the dynamics presented in the documents cover a time interval of more than a year, the calculation of the baseline rates is carried out for several adjacent periods (years). Thus, horizontal analysis allows us to evaluate not only changes in individual indicators, but also to predict their significance.
Vertical estimation makes it possible to drawattention to the elements that have the largest specific gravity. Horizontal analysis allows you to focus on those components, the proportion of which varies in leaps and bounds. Both those and other components are to some extent indicators of problem areas of the enterprise. The use of horizontal analysis alone is often inexpedient. To reflect the full picture, both methods are often used in the complex.
Thus, the horizontal and vertical analysis of the balance sheet are closely interrelated.
It should be noted that both approaches representa special value in conducting inter-farm comparisons, comparing the reporting of different enterprises on production volumes and activities.
There is also a coefficient methodeconomic evaluation. It is a set of relative values that are determined according to the data of the accounting report, mainly from data on losses and profits. Coefficients are used in accordance with a theory that provides a certain relationship between specific articles in the report. Preferred values will depend on industry characteristics of production, their sizes, which are usually estimated by sales for the year or the average annual price of assets. These indicators can affect the state of the economy as a whole and the phase of the economic cycle. The calculation of the coefficients is carried out according to the reports, which are translated into the analytical form.
As a complement to this approachthe factor method is applied. This method allows you to establish changes in the resulting characteristic that occurred under the influence of certain factors that have supposedly a quantitative impact. With the help of deterministic models, the functional connection between the arguments (factors) and the function (the resultant indicator) is investigated.
