limitation of horizontal and vertical analysis common sizing
Not what you're looking for?
The benefit of vertical analysis is certainly the benefit of comparing companies of two different sizes. Looking beyond the numbers and focusing on the changes in the numbers can provide a seasoned analyst some very useful information about the company operational effectiveness.
The usefulness tends to breakdown when you come upon a company that has fluctuating amounts reported every quarter, every year. I once invested in a company that tended to receive most of its revenues through a competitive bid process. This company didn't have normal operations and its numbers routinely fluctuated based upon how often a new contract was received. Then the numbers were even more erratic when they reported their earnings based upon the work completed for each contract. Situations like this make it difficult to use horizontal and vertical analysis effectively.
So one limitation is fluctuating numbers. What are some of the other limitations of both horizontal and vertical analysis? Should one be used more than the other?
Purchase this Solution
Solution Summary
this solution lists in bullet format over a page of limitations of each and both of these techniques. 424 words total
Education
- BSc, University of Virginia
- MSc, University of Virginia
- PhD, Georgia State University
Recent Feedback
- "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
- "Thank, this is more clear to me now."
- "Awesome job! "
- "ty"
- "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Cost Concepts: Analyzing Costs in Managerial Accounting
This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.