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Financial statement analysis explained by our small business accountants in Melbourne

Financial statement analysis refers to the process of applying analytical tools to a company’s financial statements in order to understand the company’s financial health. Enabling good decisions is one goal of financial accounting, and our small business accountants in Melbourne believe it should be the product of financial statement analysis.

Horizontal Analysis
A horizontal analysis allows a business to compare their financial performance over time. This is achieved by calculating both the change in percentage, and the change in the dollar amount. Our business accountants in Melbourne conduct a horizontal analysis both on a company’s income statement and balance sheet.

Vertical Analysis
A vertical analysis refers to a method of comparing a company’s account balances within one year by dividing each account balance by a base amount to yield a percentage. A vertical analysis allows our small business accounting services in Melbourne to compare the size of different accounts, within a one-year period, on the same financial statement. It also allows our Melbourne small business accountants to compare one company to another, as it removes the influence of “size”, as all figures are turned into percentages.

For more information about financial statement analysis, please contact our small business accountants in Melbourne today.