Which of the following tool of financial analysis of the company is based only on one year’s data?

Vertical Analysis

The correct answer is option1- Vertical Analysis.

The analysis of the company based only on one year's data is Vertical Analysis.  Vertical analysis, also known as common-size analysis, involves expressing each line item on a financial statement as a percentage of a base item within the same statement. It helps to assess the relative proportion of different components within a single financial period.

Common Size Statement, also known as component percentage statement, is a financial tool for studying the key changes and trends in the financial position and operational result of a company. Here, each item in the statement is stated as a percentage of the aggregate, or revenue from operations of which that item is a part. For example, a common size balance sheet shows the percentage of each asset to the total assets, and that of each liability to the total liabilities. Similarly, in the common size statement of profit and loss, the items of expenditure are shown as a percentage of the revenue from operations. If such a statement is prepared for successive periods, it shows the changes of the respective percentages over a period of time. Common size analysis is of immense use for comparing enterprises which differ substantially in size as it provides an insight into the structure of financial statements. Inter-firm comparison or comparison of the company’s position with the related industry as a whole is possible with the help of common size statement analysis. This analysis is also known as ‘Vertical analysis’.