Certified Fraud Examiner Practice

In a vertical analysis of financial statements, the primary focus is on the proportional analysis of individual financial statement items. This approach helps to illustrate the relationship each item has to a total within the same statement, allowing for an easy comparison over time or between different companies. For instance, in an income statement, each line item is expressed as a percentage of total revenue, while in a balance sheet, each item is expressed as a percentage of total assets. This method provides valuable insights into the relative size and importance of each component, enabling analysts and stakeholders to assess the structure and performance of a company more effectively.

Other options may involve useful analysis aspects, but they do not capture the essence of vertical analysis. Year-over-year percentage change, while important for trend analysis, focuses more on growth or decline over time rather than proportionality. Analyzing income statement ratios and evaluating balance sheet components relate to financial metrics but do not specifically represent the core objective of vertical analysis, which is the comparison of individual items to totals within their respective financial statements.