CFE – Financial Transactions and Fraud Schemes — Question 42

Vertical analysis can BEST be described as:

Answer options

• A. A technique for measuring the relationship between any two different financial statement amounts
• B. A technique for comparing the performance of a parent company to one of its subsidiaries
• C. A technique for analyzing the relationships among financial statement items where components are expressed as percentages of a specified base value.
• D. A technique for analyzing the percentage change in individual financial statement line items from one accounting period to the next accounting period.

Correct answer: C

Explanation

The correct answer is C because vertical analysis focuses on expressing each item in a financial statement as a percentage of a base figure, allowing for easy comparison within the same statement. Options A and B describe different analytical methods that do not capture the essence of vertical analysis, while option D relates to trend analysis rather than vertical analysis.