Internal and external users apply various analytical tools, such as horizontal analysis, vertical analysis, and ratio analysis, to evaluate the performance and financial condition of a company. Imagine that you are looking at investing in a company, but you feel you need to learn a little more about the company to see how it has performed in the past. You want to know if the investment is a safe one.
In this situation, which of the three analytical tools mentioned above would you use to evaluate the company’s performance and financial condition? Why would you choose that analytical tool? What would you be able to learn about the company based on that tool?