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Essay / Research Paper Abstract
This 3 page paper explains the concepts of horizontal, vertical and ratio analysis, showing how they may be used in order to examine the financial performance of an organization, discussing examples of their use. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEHVratio.doc
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Unformatted sample text from the term paper:
analysis. These three differing, but sometimes overlapping approaches can be explained, with examples of how this may be seen within a healthcare setting. Both horizontal and vertical analysis are
described in the way that the figures may be viewed and analysed when looking at either a balance sheet or an income statement. The term horizontal analysis refers to the
way the performance of a firm may be compared across different time periods. On the financial statements the different years1 are shown in columns, so a horizontal analysis will compare
the same item in different years. This can be useful to identify difference in the way a firm has performed. For example, the trend in revenues may be examined, how
they are increasing or decreasing over the years, decreasing revenues may be a warning of problems. There is also the ability to compare performance, for example, looking at the changes
that take place in the increases or decreases in revenues and in direct costs (Elliott and Elliott, 2008). This may make use of ratios such as the profit margin, to
compare the performance across the different years. Therefore, horizontal analysis can take place in terms of monetary amounts to assess differences and with the use of ratios, which will be
discussed further later in the paper, in order to compared performance. A hospital may use this to track the amount of revenue they are generating, but it may also be
used to look at more specific areas, such as the level of bad or doubtful debts, if these are increasing it may indicate a decline in the debt collection processes.
Vertical analysis may be perceived as vertical as the figures that are used to undertake the analysis will appear on the balance sheet or income statement vertically. The figures
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