A vertical analysis is best used to make comparisons between multiple companies.Group startsTrue or False
Question
A vertical analysis is best used to make comparisons between multiple companies.
Group starts
True or False
Solution
Analysis of the Statement
-
Understanding Vertical Analysis: Vertical analysis is a financial analysis method where each entry for a given period is expressed as a percentage of a base amount. In the context of financial statements, this could mean expressing each line item as a percentage of total sales for the income statement or total assets for the balance sheet.
-
Purpose of Vertical Analysis: The primary purpose of vertical analysis is to provide insight into the relative proportions of various components within a single company’s financial statements, facilitating internal comparisons and trends over time, rather than comparisons across multiple companies.
-
Comparison Among Multiple Companies: While vertical analysis can provide a snapshot of a single company's financial structure, it is not inherently designed for comparing different companies directly, as it does not account for the size and scale differences between companies.
Conclusion
Given the definition and purpose of vertical analysis, the statement that "A vertical analysis is best used to make comparisons between multiple companies" is False. Vertical analysis is more suited for analyzing a single company’s financials over time rather than comparing multiple companies.
Similar Questions
The best strategies, corporate and business, are based on a thorough SWOT analysis.Question 3Select one:TrueFalse
An organization chart shows where the hardware is located within the organization.Group startsTrue or FalseTrue, unselectedFalse, unselectedGroup ends
The aggregate plan is derived from the company’s overall business plan.Group startsTrue or False
Forming strategic partnerships is beneficial for two or more business organizations that have the same products or services.Group startsTrue or False
Vertical analysis is also known asSelect one:a.Static analysisb.Structural analysisc.Cross-sectional analysisd.All of the above
Upgrade your grade with Knowee
Get personalized homework help. Review tough concepts in more detail, or go deeper into your topic by exploring other relevant questions.