Vertical form of Balance

Sheet and Income

Statement

Why do we study Vertical

Form..
Horizontal Form caters more to the
owner of the firm rather than the
lenders or potential investors.
It is feasible and makes it easier to
understand the financial situation at
a glance.
Vertical form is allowed in case of
Companies.
Classifies expenses in different
subheads.

Income Statement
An Income Statement tracks the
income and expenses of a company
over a certain period of time to create
a picture of its profitability. Income
statements typically categorize
expenses and incomes broadly to
make it easier to understand the
financial statement of the firm.

Some important definitions related to

Income Statement:
An Operating Expense is anexpensea
business incurs through its normal
business operations. Operating expenses
include rent, equipment, inventory costs
marketing, payroll, insuranceetc
Non-operating income is gains or losses
from sources not related to the typical
activities of the business .Non-operating
incomecan include gains or losses from
investments, property or asset sales etc.

 Non-operating expensesare
theexpensesincurred by a business which
are outside of its main or
centraloperations.Non-operating
expensesare also described as incidental.
Retained earningsrefer to the net
earningsnot paid out as dividends,
butretainedby the company to be
reinvested in its core business, or to pay
debt.

Format of Income Statement

Example:
Q: Rearrange the following in the form suitable for financia
analysis.

Income Statement for the year ending on.

No
.

Particular

1.

Sales

2.

Less: Cost of goods sold

16000

Raw material consumed

7800

Consumables

800

Direct Labor

750

Other Direct Expenses

480

3.

Gross Profit (1-2)

4.

Less: Operating Expenses

5.

Amount

9830
6170

Administrative Expenses

1200

Selling Expenses

260

Depreciation

700

2160
4010

6.

Profit Before Interest and

Tax(3-4)

7.

Less: Interest

2570

8.

Net profit before Tax

1285

9.

Less : Income Tax@50%

1285

1440

Vertical Balance Sheet

A statement of the assets, liabilities,
and capital of a business or other
organization at a particular point in
time, detailing the balance of income
and expenditure over the preceding
period.

Some important definitions related to

Balance Sheet
Owners Fund: This represents
thecapitaltheoretically available for
distribution to shareholders. Owner's Fund,
also calledowner's equity, is the account
that shows theowners' stake in the business.
Tangible Assets: Tangible assetsinclude
both fixedassets, such as machinery,
buildings and land, and currentassets, such
as inventory.Any Asset which can be seen
and touched is termed as tangible asset.

 Nonphysicalassets , which cannot be touched,

such as patents, trademarks, copyrights, goodwill
and brand recognition are all examples of
Intangibleassets.
Long term Investments: Along-term
investmentis an account on the asset side of a
company's balance sheet that represents the
company'sinvestments, including stocks, bonds,
real estate that it intends to hold for more than a
year.
Loan Funds: All the funds that have been
procured from external sources.

Format of Vertical Balance

sheet

Example:
Q: Rearrange the following in the form suitable for financia
analysis.

No
.

Particular

Amount

1.

Share Capital

5000

2.

Reserve and Surplus

1500

3.

Own fund(1+2)

4.

Long term loans

12000

5.

Short term loans

1500

6.

Loan funds(4+5)

13500

7.

Total funds Available(3+6)

20000

8.

Fixed Assets

14000

9.

Investment

400

10
.

Current Assets

6000

Inventories

3700

Receivables

100

Cash and Bank

9800

6500

Less: current liabilities

11
.

Trade creditors

3350

No
.

Particular

Amount

Provisions

650

Other

200
4200

12
.1
3.

Working capital (10-11)

5600

Total Funds Employed

20000

Thank you