Maple Outdoor's net income rose by $22,500 this year. Is that a lot? For a corner store it would be huge; for a national chain it would be a rounding error. Raw dollar amounts are hard to judge on their own. Analysts fix this by turning numbers into percentages. Horizontal analysis asks how much each line changed compared with a base year. Vertical analysis asks how big each line is compared with a base total in the same year. Both work on comparative statements, which show two or more years side by side, and both let you compare a company with itself over time and with competitors of very different sizes.
Horizontal analysis: dollar and percent change
The base year is the earlier year, and the dollar change is simply current minus base. Always divide by the base year, never the current year. If the base year amount is zero or negative, a percent change cannot be meaningfully calculated, so analysts write n/m (not meaningful). Here is Maple Outdoor Ltd.'s comparative income statement with 2025 as the base year. Percentages are rounded to one decimal place.
| Maple Outdoor Ltd. | 2026 | 2025 | Dollar change | Percent change |
|---|---|---|---|---|
| Net sales | $800,000 | $700,000 | $100,000 | 14.3% |
| Cost of goods sold | $480,000 | $434,000 | $46,000 | 10.6% |
| Gross profit | $320,000 | $266,000 | $54,000 | 20.3% |
| Operating expenses | $200,000 | $180,000 | $20,000 | 11.1% |
| Operating income | $120,000 | $86,000 | $34,000 | 39.5% |
| Interest expense | $20,000 | $16,000 | $4,000 | 25.0% |
| Income before income tax | $100,000 | $70,000 | $30,000 | 42.9% |
| Income tax expense | $25,000 | $17,500 | $7,500 | 42.9% |
| Net income | $75,000 | $52,500 | $22,500 | 42.9% |
The story is in the comparison between lines. Sales grew 14.3% but cost of goods sold grew only 10.6%, so gross profit grew faster (20.3%): Maple is paying relatively less for what it sells, perhaps through better buying or higher prices. Operating expenses grew 11.1%, also slower than sales, so management is controlling costs. This combination, revenue growing faster than costs, is called operating leverage, and it is why net income grew three times as fast as sales.
| Maple Outdoor Ltd. | 2026 | 2025 | Dollar change | Percent change |
|---|---|---|---|---|
| Cash | $40,000 | $30,000 | $10,000 | 33.3% |
| Accounts receivable | $80,000 | $70,000 | $10,000 | 14.3% |
| Inventory | $120,000 | $100,000 | $20,000 | 20.0% |
| Prepaid expenses | $10,000 | $12,000 | ($2,000) | (16.7%) |
| Total current assets | $250,000 | $212,000 | $38,000 | 17.9% |
| Property, plant and equipment (net) | $450,000 | $388,000 | $62,000 | 16.0% |
| Total assets | $700,000 | $600,000 | $100,000 | 16.7% |
| Accounts payable | $90,000 | $80,000 | $10,000 | 12.5% |
| Accrued liabilities | $20,000 | $25,000 | ($5,000) | (20.0%) |
| Total current liabilities | $110,000 | $105,000 | $5,000 | 4.8% |
| Long-term debt | $200,000 | $175,000 | $25,000 | 14.3% |
| Total liabilities | $310,000 | $280,000 | $30,000 | 10.7% |
| Common shares | $200,000 | $180,000 | $20,000 | 11.1% |
| Retained earnings | $190,000 | $140,000 | $50,000 | 35.7% |
| Total shareholders' equity | $390,000 | $320,000 | $70,000 | 21.9% |
| Total liabilities and equity | $700,000 | $600,000 | $100,000 | 16.7% |
Trend percentages over several years
When you have five or more years, compare every year with one fixed base year instead of with the year before. Each year's trend percentage is that year's amount divided by the base-year amount, times 100. The base year is always 100%.
| Maple Outdoor Ltd. | 2022 | 2023 | 2024 | 2025 | 2026 |
|---|---|---|---|---|---|
| Net sales | $560,000 | $600,000 | $650,000 | $700,000 | $800,000 |
| Sales trend (2022 = 100%) | 100.0% | 107.1% | 116.1% | 125.0% | 142.9% |
| Net income | $35,000 | $40,000 | $46,000 | $52,500 | $75,000 |
| Net income trend (2022 = 100%) | 100.0% | 114.3% | 131.4% | 150.0% | 214.3% |
Vertical analysis: common-size statements
Vertical analysis converts one year's statement into a common-size statement, where every line is a percent of a single base. On the income statement the base is net sales (100%); on the balance sheet the base is total assets (100%), which also equals total liabilities and equity. Because everything becomes a percent, a company with $800,000 of sales can be compared directly with one that has $80 million.
| Maple Outdoor Ltd. | 2026 | % of net sales | 2025 | % of net sales |
|---|---|---|---|---|
| Net sales | $800,000 | 100.0% | $700,000 | 100.0% |
| Cost of goods sold | $480,000 | 60.0% | $434,000 | 62.0% |
| Gross profit | $320,000 | 40.0% | $266,000 | 38.0% |
| Operating expenses | $200,000 | 25.0% | $180,000 | 25.7% |
| Operating income | $120,000 | 15.0% | $86,000 | 12.3% |
| Interest expense | $20,000 | 2.5% | $16,000 | 2.3% |
| Income before income tax | $100,000 | 12.5% | $70,000 | 10.0% |
| Income tax expense | $25,000 | 3.1% | $17,500 | 2.5% |
| Net income | $75,000 | 9.4% | $52,500 | 7.5% |
| Maple Outdoor Ltd. | 2026 | % of total assets | 2025 | % of total assets |
|---|---|---|---|---|
| Cash | $40,000 | 5.7% | $30,000 | 5.0% |
| Accounts receivable | $80,000 | 11.4% | $70,000 | 11.7% |
| Inventory | $120,000 | 17.1% | $100,000 | 16.7% |
| Prepaid expenses | $10,000 | 1.4% | $12,000 | 2.0% |
| Total current assets | $250,000 | 35.7% | $212,000 | 35.3% |
| Property, plant and equipment (net) | $450,000 | 64.3% | $388,000 | 64.7% |
| Total assets | $700,000 | 100.0% | $600,000 | 100.0% |
| Total current liabilities | $110,000 | 15.7% | $105,000 | 17.5% |
| Long-term debt | $200,000 | 28.6% | $175,000 | 29.2% |
| Total liabilities | $310,000 | 44.3% | $280,000 | 46.7% |
| Common shares | $200,000 | 28.6% | $180,000 | 30.0% |
| Retained earnings | $190,000 | 27.1% | $140,000 | 23.3% |
| Total shareholders' equity | $390,000 | 55.7% | $320,000 | 53.3% |
| Total liabilities and equity | $700,000 | 100.0% | $600,000 | 100.0% |
Reading liquidity, solvency and profitability signals
- Profitability: cost of goods sold fell from 62.0% to 60.0% of sales, so gross margin rose from 38.0% to 40.0%. Operating expenses fell from 25.7% to 25.0%. Net income rose from 7.5 cents to 9.4 cents per dollar of sales.
- Liquidity: current liabilities shrank from 17.5% to 15.7% of total assets while current assets held steady at about 35%, so the company's short-term cushion improved.
- Solvency: total liabilities fell from 46.7% to 44.3% of total assets, and equity rose from 53.3% to 55.7%. Even though Maple borrowed $25,000 more, it financed more of its growth from retained profits, so it is less dependent on creditors.
- Interest grew 25.0% in dollars but barely moved as a percent of sales (2.3% to 2.5%), so the new borrowing is affordable.