Vertical Balance Sheet

Updated on April 30, 2024
Article byPriya Choubey
Edited byPriya Choubey
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Vertical Balance Sheet?

A Vertical Balance Sheet is the representation of a company’s assets, liabilities, and shareholder’s equity in a report format where all the items are listed from top to bottom in a single column. Also, the line of items under each category is shown in the descending order of their liquidity.

Vertical Balance Sheet

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Vertical Balance Sheet (wallstreetmojo.com)

Hence, in such a vertical format, the items that take maximum time to liquidate are at the top, and the ones that liquidate quickly are at the bottom. Such presentation of the balance sheet items facilitates their internal comparison between two consecutive accounting periods and external comparison of business performance with that of other organizations within an industry.

Key Takeaways

  • A vertical balance sheet refers to a report format whereby the assets, liabilities, and equity are recorded in a single column, one below the other, in the order of the descending liquidity period of the items in their respective categories.
  • The order of vertical format is non-current assets, current assets, non-current liabilities, current liabilities, and shareholders’ equity.
  • The horizontal and vertical balance sheets are two different financial statement formats, where the former is generally a four-column report that represents the assets and liabilities line of items side by side, along with their respective amounts.

Vertical Balance Sheet Explained

A vertical balance sheet is a single-column representation of all the assets, liabilities, and equity of an organization. In this accounting format, the balance sheet begins with a listing of assets, then liabilities and shareholders’ equity. Moreover, the recording of all these balance sheet items is done in the decreasing order of their liquidity tenure under their relevant categories. 

Given below are the three vertical balance sheet categories in their respective order:

  1. Assets: The asset category has two sub-heads: non-current assets and current assets. The balance sheet begins with the non-current assets having a maturity tenure of more than 1 year, such as fixed assets. It is followed by the current assets that are liquidated within a year, including inventories and cash.
  2. Liabilities: The subsequent reporting is of non-current and current liabilities. The non-current liabilities involve long-term obligations, which would be settled after a year. Then comes the current liabilities, which have to be fulfilled within 1 year, such as short-term borrowings and trade payables.
  3. Equity: This is the last section of this report format that represents the share capital, retained earnings, and other shareholders’ equity items.

The vertical format often provides a clear and quick overview of the firm’s financial position to the stakeholders, including the investors, shareholders, financiers, creditors, regulatory bodies, etc. It even facilitates immediate comparison between the line of items with similar liquidity or with the accounting records of other similar companies.

Moreover, it fosters transparency and aids in analyzing the current and future liquidity position of the business. However, such a representation is not helpful for trend analysis, as it fails to demonstrate the reports for different accounting periods. Also, it may not be suitable when there is an extensive list of balance sheet items.

Format

The primary vertical balance sheet proforma states the assets first and then the liabilities and equity, while all the items listed are in the descending order of their liquidity position or tenure, as shown below:

Vertical Balance Sheet In The Books Of Company’s Name As on Date
PARTICULARSNOTE No.AMOUNT
   
ASSETS  
Non-Current Assets:  
Property, Plant & Equipment XXX
Intangible Assets XXX
Investments XXX
Other Non-Current Assets XXX
  XXX
Current Assets:  
Inventories XXX
Investments XXX
Trade Receivables XXX
Cash and Cash Equivalents XXX
Other Current Assets XXX
  XXX
Total Assets XXX
   
LIABILITIES AND EQUITY  
Non-Current Liabilities:  
Long-Term Borrowings XXX
Long-Term Provisions XXX
Deferred Tax Liabilities (Net) XXX
Other Non-Current Liabilities XXX
  XXX
Current Liabilities:  
Short-Term Borrowings XXX
Trade Payables XXX
Short-Term Provisions XXX
Other Current Liabilities XXX
  XXX
Equity:  
Share Capital XXX
Retained Earnings XXX
Other Equity XXX
Total Equity XXX
   
Total Liabilities and Equity XXX

However, the companies can modify this report format to include the accounting figures of the previous year in a separate amount column to facilitate the comparison of the company’s financial status over different accounting periods.

Examples

Let us find out the practical representation of assets, liabilities, and equity in this format with the help of the following examples:

Example #1

Suppose the management of a budding firm, ABC Ltd. It is to protect the company’s performance in an investors’ meet where it is seeking a successful funding round. The business is in fair financial health and is majorly funded by the owner’s capital. It has limited external liabilities. Now, in the presentation, if the team uses a horizontal balance sheet, then the investors would find it difficult to compare the current assets with current liabilities. However, if they use a vertical balance sheet, then it becomes easy for the investors to identify at a glance that the company has a solid leverage position and its assets are majorly funded internally.

Example #2

Suppose Company Alpha and Company Beta, both vying for investor attention, approach their annual shareholder meetings with differing balance sheet presentations. Company Alpha employs a horizontal balance sheet format, showcasing a spike in current assets due to increased inventory purchases ahead of an anticipated market demand surge.

However, this is met with a sharp rise in current liabilities, mainly driven by aggressive short-term borrowing to finance the inventory buildup. Meanwhile, Company Beta adopts a vertical balance sheet format, enabling investors to discern a similar surge in current assets but with a more stable current liabilities trend. The vertical layout indicates efficient working capital management and a cautious approach to financing, potentially positioning Company Beta more favorably in investors’ eyes.

Difference Between Vertical And Horizontal Balance Sheet

The vertical and horizontal balance sheets are two of the three different types of balance sheets. They differ in the following ways:

BasisVertical Balance SheetHorizontal Balance Sheet
DefinitionIt is a report format where the balance sheet items are depicted in a single column beginning with the assets, followed by the liabilities and equity, while recording the items in the order of their decreasing liquidity period.It demonstrates the assets and liabilities side by side. Thus, it is a four-column representation of assets, liabilities, and equity, where the first two columns are for assets, and their figures, and the other two columns show liabilities and their numbers, respectively.
FormatIt has three columns: the first one shows particulars, i.e., the assets, liabilities, and equity; the second one mentions the note no. for each item; and the third one represents their amounts.It has four columns: the first one represents asset items; the second one depicts the corresponding asset values; the third column is for liabilities; and the fourth one mentions the respective liability amounts.
RepresentsAn immediate outline of the firm’s financial conditionAn organized record of assets and liabilities
Focuses onLiquidity of assets, liabilities, and equityChanges in assets, liabilities, and equity over different accounting periods
UseFacilitates immediate comparison and analysis of the company’s liquidity status and whether its assets are funded from liabilities or equityIt helps in determining the growth or downfall of the company and financial trend analysis over the period; also, it aids in gauging the material errors and accounting irregularities in the books.

Frequently Asked Questions (FAQs)

How to view vertical balance sheet?

A user can analyze it by comparing items of similar liquidity, for example, comparing the current assets with the firm’s current liabilities and fixed assets with the long-term debt of the company. Moreover, the analyst can gauge the current year’s change in assets, liabilities, and equity position when compared to that of the last year to interpret the company’s financial health.

Why is a vertical balance sheet important?

It is a condensed form of accounting summary that facilitates a straightforward interpretation of the firm’s liquidity and leverage position. Also, it helps the stakeholders quickly compare the company’s internal financial soundness and liquidity with that of its competitors in the industry. Moreover, it helps to determine whether the assets are funded through equity or liabilities.

When to use a vertical balance sheet?

Such a report format can be efficiently used for demonstrating the company’s financial position at a glance during corporate meetings, presentations, and reports.

This article has been a guide to what is Vertical Balance Sheet. Here, we explain its format, examples, and comparison with horizontal balance sheet. You may also find some useful articles here –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *