Question

In vertical analysis, each item in a financial statement is expressed A : in dollars and cents. B : starting with the highest value down to the lowest value. C : in terms of a percentage of the item in the previous year. D : in terms of a percent of a base amount.

Answer 1

The correct answer is D. In terms of a percent of a base amount.

Step-by-step explanation:

As the objective of the vertical analysis is to determine how much each account of the asset represents within the total of the asset, the account to be determined must be divided by the total of the asset and then proceed to multiply by 100. If the total of the asset It is 200 and the available is 20, so we have (20/200) * 100 = 10%, that is, the available represents 10% of the total assets.

It can be said, for example, that the available (cash and banks) should not be very representative, since it is not profitable to have a large amount of cash in the cash or in the bank where it is not generating any profitability. Every company should try not to have more cash than is strictly necessary, with the exception of financial institutions, which due to their corporate purpose must necessarily conserve significant cash resources.