What does Vertical Analysis show?

Vertical analysis is a financial analysis technique used to evaluate the relative size of various components within a single financial statement. Specifically, it expresses each item in a financial statement as a percentage of a base figure within that statement. In the context of an income statement, for instance, each expense can be expressed as a percentage of total revenue, while in a balance sheet, each asset can be viewed as a percentage of total assets.

By using vertical analysis, users can easily see how much of the total revenue is allocated to different expenses, as well as understand the sources of revenue. This analysis helps in identifying trends over time and assessing the efficiency of operations by clarifying where money is being generated and how it is being utilized. Therefore, it provides insights into both revenue generation and expenditure management, making the choice reflecting that focus particularly accurate.