Vertical and Horizontal Analysis of

Financial Statement of a
Sole Proprietorship
Vertical Analysis Formula
•  

• Percentage of Base=
 Vertical Analysis of the Balance Sheet
21st century Water Resources Refilling Station
2014 2013
Amount Percent Amount Percent
Cash Php 91,626 2.3% Php 7,792 0.2%
Acc. Receivable 939,460 24% 676,411 19.7%
Inventories 1,836,634 46.8% 1,377,475 40.2%
Prepaid Rent 180,000 4.6% 360,000 10.5%
Total Current Assets 3,047,720 77.7% 2,421,678 70.7%

Equipment and Fixt. 1,280,961 32.7% 1,287,157 37.6%

Less Accum. Depre. 406,728 10.4% 281,581 8.2%
Total Fixed Assets 874,233 22.3% 1,005,575 29.3%
TOTAL ASSETS 3,921,953 100.0% 3,427,253 100.0%
 Vertical Analysis of the Balance Sheet
21st century Water Resources Refilling Station
2014 2013
Amount Percent Amount Percent
Account Payable Php 467,376 11.9% Php 560,851 16.4%
Notes Payable 321,000 8.2% 681,385 19.9%
Accruals 436,560 11.1% 523,872 15.3%
Total Current Liab. 1,224,936 31.2% 1,766,108 51.5%

Long Term Debt 608,000 15.5% 1,134,072 33.1%

Owner’s Capital 2,089,017 53.3% 527,073 15.4%
TOTAL LIAB. & 3,921,953 100.0% 3,427,253 100.0%
CAP.
 Vertical Analysis of the Income Statement
2014 2013
Amount Percent Amount Percent
Net Sales Php 7,457,736 100% Php 6,396,040 100%
Less: Cost of Goods 6,228,552 84% 5,859,680 92%
Sold
Gross Profit 1,229,184 16% 536,360 8%
Less: Other Expenses 886,177 12% 561,974 9%
Operating Income 343,008 5% -25,614 0%
Less: Interest Expense 74,208 1% 144,173 2%
Net Income 268,799 4% -169,787 -3%
Horizontal Analysis Formula
•  

• x100
 Horizontal Analysis of the Balance Sheet
21st century Water Resources Refilling Station
2014 2013 Change in Amount Percentage
Cash Php 91,626 Php 7,792 Php 83,834 1076%
Acc. Receivable 939,460 676,411 263,049 39%
Inventories 1,836,634 1,377,475 459,159 33%
Prepaid Rent 180,000 360,000 -180,000 -50%
Total Current Assets 3,047,720 2,421,678 626,042 26%

Equipment and Fixt. 1,280,961 1,287,157 -6196 -48%

Less Accum. Depre. 406,728 281,581 125,147 44%
Total Fixed Assets 874,233 1,005,575 -131,342 -13%
TOTAL ASSETS 3,921,953 3,427,253 494,700 14%
 Horizontal Analysis of the Balance Sheet

2014 2013 Change in Amount Percentage

Account Payable Php 467,376 Php 560,851 Php -93,475 -17%
Notes Payable 321,000 681,385 -360,385 -53%
Accruals 436,560 523,872 -87,312 -17%
Total Current Liab. 1,224,936 1,766,108 -541,172 -31%

Long Term Debt 608,000 1,134,072 -526,072 -46%

Owner’s Capital 2,089,017 527,073 1,561,943 296%
TOTAL LIAB. & 3,921,953 3,427,253 494,699 14%
CAP.
 Horizontal Analysis of the Income Statement
2014 2013 Change in Amount Percentage
Net Sales Php 7,457,736 Php 6,396,040 Php 1,061,696 17%
Less: Cost of Goods 6,228,552 5,859,680 368,872 6%
Sold
Gross Profit 1,229,184 536,360 692,824 129%
Less: Other Expenses 886,177 561,974 324,203 58%
Operating Income 343,008 -25,614 368,621 1439%
Less: Interest Expense 74,208 144,173 -69,964 -49%
Net Income 268,799 -169,787 438,586 258%
FINANCIAL RATIOS
Current Ratio
•  

• Current Ratio =
Example:
•   2014 2013

• Current Ratio=
• Current Ratio = 2.5:1 1.4:1
Working Capital

• Working Capital= Current Assets - Current Liabilities

Example:
• Working Capital =

2014 2013

• = Php 3,047,720 - 1,224,936 2,421,678 - 1,766,108

• = 1,822,784 655,570
Equity Ratio

• Equity Ratio = Total Equity/Total Assets

Example:
•   2014 2013

• Equity Ratio = :
• Equity Ratio = 53% : 15%
Net Profit Ratio

• Net Profit Ratio=(Net Profit/Net Sales)100

Example:
•   2014 2013

• Net profit Ratio = :

• Net Profit Ratio = 4% : -2.7%
Debt to Total Assets Ratio

• DTAR=(Total Liabilities / Total Assets)100

Example:
•   2014 2013

• Debt Total Assets Ratio = :

• Debt Total Assets Ratio = 31% : 52%
Net Income of Owner’s Equity Ratio

• NIOER=Net Income for the period/Average of Owner’s Equity

Ratio of Net Sales to Total Assets

• Formula=(Net Sales/Total Assets)100

Example:
•   2014 2013

• Formula = :
• Formula = 190% : 186%
Ratio of Net Income to Total of Assets

• NITA=(Net Income/Total Assets)100

Example:
•   2014 2013

• Formula = :
• Formula = 190% : 186%
Time Interest Earned

• TIE= (Operating Income/Interest Expense) 100

Example:
•   2014 2013

• Formula = :
• Formula = 462% : -18%
Sources:
• Frias,S.F (2016) Fundamentals of Accountancy, Business and Management: A textbook in
Basic Accounting 2. Quezon City, Philippines: The Phoenix Publishing House
• Yumang, K.L. . et. al(2016) Exploring Small Business and Personal Finance. Quezon City,
Philippines: The Phoenix Publishing House
• Averkamp, H.(2018). What is current ratio.Accounting Coach. Retrieved from:
https://www.accountingcoach.com/blog/current-ratio-2
• My Accounting Course (2018). Return on Asset ratio. Retrieved from:
https://www.myaccountingcourse.com/financial-ratios/return-on-assets
EXERCISES:
A. Get the Percentage of the table by using the
formula of the vertical analysis
21 century Water Resources Refilling Station
st

2013 2014 2015

Sales Php 400,000 Php 425,000 Php 500,000
Cost of Goods Sold 120,000 123,250 200,000
Gross Profit 280,000 301,750 300,000

Salaries 95,000 97,000 150,000

Rent 25,000 25,000 25,000
Marketing 20,000 20,000 50,000
Utilities 5,000 5,000 5,000
Other Expenses 7,500 10,000 8,000
Total Expenses 152,500 157,000 238,000
Net Income 127,500 144,000 62,000
 21st century Water Resources Refilling Station
2013 2014 2015
Sales 100% 100% 100%
Cost of Goods Sold 1. 10. 19.
Gross Profit 2. 11. 20.

Salaries 3. 12. 21.

Rent 4. 13. 22.
Marketing 5. 14. 23.
Utilities 6. 15. 24.
Other Expenses 7. 16. 25.
Total Expenses 8. 17. 26.

Net Income 9. 18. 27.

 B. Get the Change in Amount and the Percentage
by using the formula of the horizontal analysis
2014 2013 Change in Amount Percentage
Cash Php 70,000 Php 8,567 1. 10.
Acc. Receivable 150,000 75,000 2. 11.
Inventories 300,670 400,500 3. -25%
Prepaid Rent 180,000 360,000 4. -50%
Total Current Assets 700,670 844,067 5. -21%

Equipment and Fixt. 500,000 300,000 6. 12.

Less Accum. Depre. 250,000 157,000 7. 13.
Total Fixed Assets 750,00 457,000 8. 64%
TOTAL ASSETS 1,450,670 1,301,067 9. 8%
Answer Keys:
Vertical Analysis of the Income Statement
21st century Water Resources Refilling Station
2013 2014 2015
Sales 100% 100% 100%
Cost of Goods Sold 1. 30% 10. 29% 19. 40%
Gross Profit 2. 70% 11. 71% 20. 60%

Salaries 3. 24% 12. 23% 21. 30%

Rent 4. 6% 13. 6% 22. 5%
Marketing 5. 5% 14. 5% 23. 10%
Utilities 6. 1% 15. 1% 24. 1%
Other Expenses 7. 2% 16. 2% 25. 2%
Total Expenses 8. 38% 17. 37% 26. 48%

Net Income 9. 32% 18. 34% 27. 12%

 2014 2013 Change in Amount Percentage
Cash Php 70,000 Php 8,567, 1. Php -61,433 10.
Get the
Acc. Receivable
Change in
150,000
Amount and
75,000
the
2. 11.
717%

Percentage
Inventories 300,670 400,500
75,000
3. - 99,830
100%
-25%

Prepaid Rent 180,000 360,000 4. -180,000 -100%

Total Current Assets 700,670 885,500 5.-184,830 -21%

Equipment and Fixt. 500,000 300,000 6. 200,000 12.

67%
Less Accum. Depre. 250,000 157,000 7. 13.
93,000 59%
Total Fixed Assets 750,000 457,000 8. 64%
293,000
TOTAL ASSETS 1,450,670 1,342,500 9. 11%
108,170