Certified Financial Management Specialist Practice Exam

Which analysis method is useful for showing a single financial period's performance?

1. Horizontal Analysis

2. Vertical Analysis

3. Trend Analysis

4. Variance Analysis

The correct answer is: Vertical Analysis

Vertical Analysis is particularly useful for showing a single financial period's performance because it presents financial statement items as a percentage of a base figure. For example, in an income statement, each item can be expressed as a percentage of total revenue, allowing for easy assessment of the relative size of various expenses in relation to sales for that specific period. This method enables analysts to understand the composition and structure of a company's finances in one snapshot, facilitating comparisons within the same period, thus clarifying how resources are allocated and how effectively they are being utilized. In contrast, other analysis methods have different focuses: Horizontal Analysis looks at the changes over multiple periods, making it valuable for identifying trends over time rather than assessing a single period. Trend Analysis specifically tracks performance metrics over time to identify long-term patterns, while Variance Analysis is employed to compare actual financial performance against budgeted figures or standard costs, focusing on performance differences rather than a single period's performance.