Vertical Analysis
A financial statement analysis technique that expresses each line item as a percentage of a base figure within the same period.
What is Vertical Analysis?
Vertical analysis (also called common-size analysis) converts every line item in a financial statement into a percentage of a base amount within the same reporting period. On the income statement, each item is expressed as a percentage of total revenue (sales). On the balance sheet, each item is expressed as a percentage of total assets. The result — a common-size financial statement — allows meaningful comparison between companies of different sizes and between periods without being distorted by absolute dollar amounts. For example, if two companies both report $100M in gross profit but Company A has $200M in revenue (50% gross margin) while Company B has $400M in revenue (25% gross margin), vertical analysis immediately highlights the structural difference. Vertical analysis is widely used in competitive benchmarking and identifying margin compression or expansion trends over time.
Example
Apple's income statement for FY2024 shows: Revenue $391B (100%), Cost of Revenue $211B (54%), Gross Profit $180B (46%), Operating Expenses $57B (15%), Operating Income $123B (31%). Common-size analysis shows Apple converts 31 cents of every revenue dollar into operating income — a useful benchmark when comparing against other large-cap technology companies.
Source: Apple Inc. 10-K FY2024