What is the difference between horizontal and vertical analysis of financial statements?

Horizontal
and vertical analysis of financial statements deal strictly with the time period in question for
analyzing the statements. Horizontal analysis takes a look at a specific aspect of the business
throughout different time periods for comparison. For example, a horizontal comparison will look
at a single factor, like overhead, cost of goods sold, or sales throughout different time
periods. If you are comparing overhead from each quarter of the year or comparing overhead for
quarter 3 of 2017 to Quarter 3 of 2016, then you are performing a horizontal analysis. This
gives an understanding of how certain elements of the financial worksheet have changed over
time.

A vertical analysis looks at the comprehensive view of the financial
worksheet for a specific time period. You would analyze all of the different factorsprofit, cost
of goods sold, overhead, sales, etc, for a single quarter or year. This gives a comprehensive
viewpoint of the company's finances as a whole for that time period. A vertical analysis would
tell you how much money the company has earned and spent in a certain time period.

Both of these elements are useful for analyzing a company's performance. While either
factor individually can be good or bad, a healthy company will have positives for each of them,
to show that profit has improved over time and is currently positive.