Which analysis is an example of vertical analysis?

Vertical analysis is a method of financial statement analysis in which each line item on a financial statement is listed as a percentage of a base item. This technique is useful for comparing the relative proportions of different items within a single period's financial statement.

In the context of the choices provided, both linear trend analysis and base year analysis can be employed to assess financial performance over time, but they operate differently. Linear trend analysis typically involves analyzing changes over multiple periods without relating each line item to a base figure from the same period. In contrast, base year analysis compares current financial statements against a designated base year to see changes in percentage terms, which aligns with the principle of vertical analysis.

Thus, recognizing that both types of analysis can provide insights into financial performance does not negate the understanding that vertical analysis is focused on current state percentages rather than temporal trends. Consequently, base year analysis fits the definition of vertical analysis best, while linear trend analysis does not directly fit into that category.