1. Vertical & Horizontal Capital Analysis

Horizontal Analysis (Dynamics): We track changes in Equity and Liabilities year-over-year (in both currency and %). This shows whether the company is funding its growth primarily through new debt or by reinvesting its own capital.

Vertical Analysis (Overall Structure): We measure the percentage share of Equity vs. Total Liabilities in total financing, and calculate Permanent Capital (Equity + Long-term Liabilities) to see how much stable, long-term funding the company holds.

Internal Structure (Quality of Capital): We look inside both blocks:

Inside Equity: Is the company building wealth organically through Retained Earnings (accumulated profits), or relying on external Share Capital injections?

Inside Liabilities: Does Long-term Debt (safe, predictable) dominate over Short-term Liabilities (requiring quick repayment within 12 months)?

2. Golden and silver rules of financing 

Now, let’s move to the second part of our theory review: the Golden and Silver Rules of Financing.

The Golden Rule of Financing is very strict. It says that Shareholders' Equity should be at least equal to Total Debt (Equity / Total Debt >= 100%). In practice, at least 50% of the company must be funded by the owners' own money.

The Silver Rule of Financing is more practical for big companies. It says that Shareholders' Equity should be at least half of Total Debt (Equity / Total Debt >= 50%). In practice, at least 33.3% of the company is funded by Equity, and up to 66.7% can be funded by Debt.

Let’s look at the table on the screen to see how this works.

3. Playing with the golden and silver rules of financing