The correct answer is Option (2) → one year
Vertical analysis studies the statements of one year: every item is expressed as a percentage of a common base of that same year (revenue from operations, or total assets). Such common size figures can then be set beside other years or other firms, but the analysis itself works on a single year's data.
NCERT (2026-27 edition):
Tools of Analysis of Financial Statements – “… 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. The percentage thus calculated can be easily compared with the results of corresponding percentages of the previous year or of some other firms, as the numbers are brought to common base. Such statements also allow an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. 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’.” |
