'Vertical analysis' is also known as: (A) Ratio Analysis (B) Cash Flo…

'Vertical analysis' is also known as:

(A) Ratio Analysis

(B) Cash Flow Analysis

(D) Common Size Statement Analysis

Choose the correct answer from the options given below:

Answer & explanation

Correct answer: option 3

The correct answer is Option (3) → (D) Only

In a common size statement every item of a statement is shown as a percentage of one common item (revenue from operations, or the balance sheet total). The figures are read down the column of a single statement, which is why this is called vertical analysis.

(A) Ratio Analysis Incorrect. Ratio analysis relates two items to each other (current assets to current liabilities, for example); it is a separate tool. Ratios may be used along with common size statements when a single year’s statement is studied, but ratio analysis is not another name for vertical analysis.

(B) Cash Flow Analysis Incorrect. Cash flow analysis studies the inflows and outflows of cash by activity; it is not vertical analysis.

(C) Comparative Statement Analysis Incorrect. Comparative statements set the figures of two or more years side by side, so they are horizontal analysis.

(D) Common Size Statement Analysis Correct. Common size statements are the analysis known as vertical analysis.

NCERT (2026-27 edition):
Common Size Statements – “… These are the statements which indicate the relationship of different items of a financial statement with a common item by expressing each item as a percentage of that common item.”

NCERT (2026-27 edition):
Common Size Statements – “… Thus, common size statements are useful, both, in intra-firm comparisons over different years and also in making inter-firm comparisons for the same year or for several years. This analysis is also known as ‘Vertical analysis’.”

NCERT (2026-27 edition):
Test your Understanding - I

Extract from the NCERT textbook