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Waterfall chart

Waterfall chart is a science topic covered in the lgStudy science library. This page brings together a partial reference excerpt, illustrations, worked examples, real-world applications and a short study plan, so you can understand Waterfall chart rather than just read about it. In short: A waterfall chart is a form of data visualization that helps in understanding the cumulative effect of sequentially introduced positive or negative values. These intermediate values can either be time based or category based.

Waterfall chart — main illustration
Waterfall chart — illustration

Key takeaways

  • Waterfall chart belongs to science; place it in that map before memorising details.
  • Learn the definition first, then one example that makes the definition concrete.
  • Connect Waterfall chart to a quantity you can measure, compute or draw — that is where exam questions come from.
  • Reproduce the core statement of Waterfall chart from memory before moving on to harder problems.

Reference excerpt

A waterfall chart is a form of data visualization that helps in understanding the cumulative effect of sequentially introduced positive or negative values. These intermediate values can either be time based or category based. The waterfall chart is also known as a flying bricks chart or Mario chart (after the floating bricks in Nintendo's "Super Mario" games) due to the apparent suspension of columns (bricks) in mid-air. Often in finance, it will be referred to as a bridge. Waterfall charts were popularized by the strategic consulting firm McKinsey & Company in its presentations to clients. Complexity can be added to waterfall charts with multiple total columns and values that cross the axis. Increments and decrements that are sufficiently extreme can cause the cumulative total to fall above and below the axis at various points. Intermediate subtotals, depicted with whole columns, can be added to the graph between floating columns.

Overview The waterfall is known as a bridge or cascade; the chart portrays how an initial value is affected by a series of intermediate positive or negative values. Also, it is similar to bar graph.

Applications A waterfall chart can be used for analytical purposes, especially for understanding or explaining the gradual transition in the quantitative value of an entity that is subjected to increment or decrement. Often, a waterfall or cascade chart is used to show changes in revenue or profit between two time periods.

Waterfall charts can be used for various types of quantitative analysis, ranging from inventory analysis to performance analysis. Waterfall charts are also commonly used in financial analysis to display how a net value is arrived at through gains and losses over time or between actual and budgeted amounts. Changes in cash flows or income statement line items can also be shown via a waterfall chart. Other non-business applications include tracking demographic and legal activity changes over time.

There are several sources for automatic creations of Waterfall Charts (PlusX, Origin, etc.)

References

Illustrations

Waterfall chart: An example of waterfall charts. Here, there are 3 total columns called Main Column1, Middle Column, and End Value. The accumulation of successive two intermediate columns from the first total column (Main Column1) as the initial value results in the 2nd total column (Middle Column), and the rest accumulation results in the last total column (End Value) as the final value.
An example of waterfall charts. Here, there are 3 total columns called Main Column1, Middle Column, and End Value. The accumulation of successive two intermediate columns from the first total column (Main Column1) as the initial value results in the 2nd total column (Middle Column), and the rest accumulation results in the last total column (End Value) as the final value.
Waterfall chart: Waterfall chart showing profitability analysis
Waterfall chart showing profitability analysis
Waterfall chart: Inventory analysis using waterfall chart
Inventory analysis using waterfall chart

Worked examples

Example 1 — a first encounter with Waterfall chart

Start with the simplest possible case. Write down what Waterfall chart claims or describes in one sentence, then invent the smallest concrete situation in which that sentence is true. In science, the smallest case is usually a single object, a single equation or a single measurement. Check that every symbol or term in your sentence has a meaning in that case.

Example 2 — changing one variable

Take the situation from Example 1 and change exactly one quantity: double it, halve it, or set it to zero. Predict what should happen to Waterfall chart before you calculate. Comparing your prediction with the result is the fastest way to find out whether you understand the idea or only the words.

Example 3 — an exam-style question

Typical questions about Waterfall chart ask you to (a) state it precisely, (b) apply it to given data, and (c) explain a limitation. Practise writing all three answers in under five minutes; the third part is what separates a full-mark answer from an average one.

Applications of Waterfall chart

In research
Waterfall chart appears in science research whenever the underlying quantities have to be modelled precisely. Papers usually cite it as a starting assumption and then explore where it breaks down.
In technology and industry
Engineering practice reuses Waterfall chart in design rules, simulations and safety margins. Knowing the idea lets you read a specification sheet and understand why the numbers look the way they do.
In the classroom
Waterfall chart is common in secondary-school and first-year university syllabi. It links to neighbouring topics Charts, Management theory, Metaphors referring to water, so understanding it makes those chapters shorter.
In everyday life
Look for Waterfall chart outside the textbook — in sport, cooking, traffic, electronics or the sky above you. An example you found yourself is remembered far longer than one you were given.
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How to study Waterfall chart in 20 minutes

  1. Read the reference excerpt below once, without taking notes.
  2. Close the page and write down what Waterfall chart means in your own words.
  3. Compare your version with the excerpt and mark what you missed.
  4. Work through the three examples above with pen and paper.
  5. Explain Waterfall chart out loud to somebody else — or to Teacher Smith in the lgStudy chat.

Frequently asked questions

What is Waterfall chart in simple terms?

A waterfall chart is a form of data visualization that helps in understanding the cumulative effect of sequentially introduced positive or negative values. These intermediate values can either be time based or category based.

Why does Waterfall chart matter?

Because it connects several science ideas at once: it gives you a definition you can apply, a quantity you can calculate, and a way to check whether a result is plausible.

How should I study Waterfall chart?

Read the excerpt, restate it from memory, then work through the examples and applications listed on this page. The five-step study plan above takes about twenty minutes.

What does this page cover?

It gives you a compact reference excerpt plus original lgStudy explanations, examples, applications and study material on Waterfall chart.

Tags

  • Charts
  • Management theory
  • Metaphors referring to water
  • Visualization (graphics)

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