Vertical Analysis:

Understanding the Learning Objectives:

Comparing each item on a financial statement with a total amount from the same statement is useful in analyzing relationships

within the financial statement.

Vertical analysis is the term used to describe such comparisons.

In vertical analysis of an income statement, each item is stated as a percent of revenues or fees earned.

This type of analysis is useful for analyzing changes in financial statements over time.

The analysis of the various percentages and comparing the data across multiple timeframes can enhance the organizations

understanding of the holistic operational efficiency of the organization.

The analysis of the various percentages can be enhanced further by comparisons with other industry averages.

Such averages are published by trade associations and financial information services. Any major differences between

industry averages should be investigated.

Amazon.com, Inc. is the largest Internet retailer in the United States. Amazon's income statements through

operating income for two recent years are as follows $($in millions$)$: