Traditionally, there are two methods of percentage analysis of financial statements. Which two methods are they?

• A. Horizontal and historical analysis
• B. Horizontal and vertical analysis
• C. Vertical and historical analysis
• D. Balance sheet and income statement analysis

Answer: (B)

Percentage analysis of financial statements relies on two standard methods: horizontal analysis and vertical analysis.

Horizontal analysis looks at how each line item changes over time, showing trends and growth rates from one period to the next. By expressing changes as percentages relative to a base period, you can see which areas are expanding or contracting and at what pace, which helps assess performance and risk over time.

Vertical analysis expresses each item as a percentage of a base figure within the same period. On the balance sheet, all items are shown as a share of total assets; on the income statement, items are shown as a share of net sales. This creates common-size statements, which make it easy to compare companies of different sizes and to analyze the cost structure and profitability margins within a single period.

Together, these approaches give a clear view of both how a company is evolving over time and how its financial structure and costs are composed in a given period.