Introduction
Vertical and horizontal analysis are essential components in analyzing financial statements for the company; both vertical and horizontal analysis presents a significant source of information about the company’s performance for internal users. Therefore, the forms of analysis are used by management to identify issues in the company’s accounting and financial statements. This essay will use the example of Pfizer to draw conclusions from the company’s vertical and horizontal analysis.
The Pfizer company’s vertical and horizontal analysis
Firstly, the vertical analysis of Pfizer’s revenue in the 2021 report shows a decline in the proportion of gross profit margin. The proportion indicator data drops from 79,26% in 2020 to 62.08 in 2021 (Macrotrends, 2022). On the contrary, the net and operating profit margins show an almost 5% increase in proportion. The change can be explained by a decline in the proportion of revenue compared to sales volume. However, the increase in operating margin proportion can signal the increased amount of profit generated for each dollar in the revenue. Next, the horizontal analysis of Pfizer’s revenue through the period from 2018 to 2021 shows an almost double increase in revenues from $40 825 million to $81 288 million (Macrotrends, 2022). In general, all company’s financial statements show a steady increase. However, the data for the cost of goods sold shows a drastic increase from $8 484 to $30 821, confirming the vertical analysis information.
Conclusion
Thus, the use of vertical and horizontal analyses can present a source of important information for the company’s internal users. The vertical analysis indicates the proportion of financial statements, which can be used to identify exact changes in individual indicators. On the other hand, the horizontal analysis shows how the company’s financial statements change with time, signaling wider changes in the company’s finances. In the example, the data from the vertical analysis matched with the vertical analysis, which means there are no errors in Pfizer’s accounting.
Reference
Macrotrends. (2022) Pfizer income statement 2009-2022 | PFE. Macrotrends.