What type of analysis calculates each individual item on a financial statement as a percentage of the total?

The type of analysis that calculates each individual item on a financial statement as a percentage of the total is vertical analysis. This method facilitates a clear understanding of the relative size of individual components in comparison to the whole, making it a valuable tool for financial statement analysis.

For instance, in a vertical analysis of an income statement, every item is expressed as a percentage of total sales or revenue. This approach allows stakeholders to easily assess relationships and proportions within the statement, providing insights into areas such as cost management and profit margins.

In contrast, horizontal analysis looks at trends over time by comparing financial data across multiple periods, which does not focus on percentage relationships to a total in a single period. Ratio analysis involves comparing line items to one another to gauge financial health and performance through calculated metrics, while trend analysis examines historical data to identify patterns over time, making vertical analysis distinct for its emphasis on a single period’s structure and distribution.