What is Vertical Analysis?
Vertical analysis, also called common-size analysis, is a technique that expresses each line item on a financial statement as a percentage of a base figure within the same statement. On the income statement, the base is usually revenue. On the balance sheet, the base is total assets. It enables fast comparisons across periods and across companies of different sizes.
How It Works
- Select the base (revenue for the P&L, total assets for the balance sheet).
- Express each line as a percentage of the base.
- Compare percentages across periods to see structural shifts.
- Compare percentages against industry benchmarks or peers.
- Combine with horizontal analysis for a complete picture.
Saudi Context
Saudi equity research analysts and corporate FP&A teams use vertical analysis to benchmark SG&A intensity, gross margin, and asset composition against Tadawul-listed peers. Vertical analysis of payroll as a percentage of revenue is also a common indicator used in Saudization-related cost reviews.
Example
Company A and Company B have very different sizes. By expressing each P&L line as a percentage of revenue, the analyst sees Company A’s gross margin at 42% versus B’s 28%, and Company A’s SG&A at 18% versus B’s 12%, supporting a structural margin-vs-efficiency comparison.