Horizontal analysis is used to evaluate a company's performance over time: spotting the direction of change in account balances, and the magnitude in which that change has occurred. In this horizontal analysis of the income statement of Meta Platforms, we see a slight decline of 1% in revenue year over year, and a huge decrease in income from operations of 38%. It’s very clear what the major cost category is that drove the cost increase: R&D. Up 43% versus the prior year.

In a vertical analysis, you express each line item as a percentage of a base figure within the financial statement. In the case of the income statement, that base figure in the vertical analysis is revenue. Revenue is 100%, and in this example gross profit is 78% of revenue, and income from operations 25% of revenue.

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