What is a Waterfall Chart?
Also known as a bridge chart or cascade chart, a waterfall chart is often used in finance to illustrate how a series of positive or negative contributions impact an initial value.
On a standard bar chart, values may change from one bar to the next with no clear explanation for why they did so. When the underlying factors contributing to a given change are important, a waterfall chart is an excellent tool to employ.
Waterfall charts can be a bit confusing for viewers who are unaccustomed to the format. The alignment of the bars and what they’re meant to convey in the context of this type of chart might not be readily apparent to all who view it.
How a waterfall chart works
A waterfall chart looks a lot like a normal bar chart; however, there are additional bars after recorded values to represent positive and negative factors that created the value that follows. A waterfall chart can provide ample context for fluctuations in a given measurement over time by displaying the values of factors that contribute to the next number being higher or lower.
As an example, you can modify a bar chart measuring a business's profit from one point in time to another to make a waterfall chart by adding a bar to the right of the initial profit value that begins at its top and measures additional sales revenue (going up).
This could be followed by another bar starting at the last bar’s top and measuring fixed costs (going down). Finally, the second profit total would be represented as a normal bar that matches the previous profit value plus the added sales revenue and minus the fixed costs.
When are waterfall charts used?
You can use waterfall charts to measure all manner of things that bar charts can represent. Whenever the results of a bar chart need to be explained visually, a waterfall chart is an excellent tool for doing so.
Financial organizations often use waterfall charts to explain profits and losses in more detail. Retail companies often use them to visualize inventory or sales over time. Project managers use waterfall charts to illustrate budget changes, and other companies may use them to show the factors that influence a product’s value over a period of time.
Researchers in the healthcare industry can even use them to visualize how vaccination rates and other factors impact the spread of disease. While not all industries make regular use of these types of charts, they have many possible use cases.
Types of waterfall charts
Waterfall charts come in a variety of forms to better serve specific purposes. Certain variations do away with the waterfall appearance of standard charts of this type (a diagonal slope of connected bars) and take on another look entirely. However, they are all still considered waterfall charts.
Two noteworthy types of waterfall charts are waterfall charts with subtotals and comparison waterfall charts:
- Waterfall charts with subtotals — A waterfall chart can have multiple values as it progresses from start to finish for a given period. Values shown in between the extremes represent subtotals and can be used to express relevant moments in a value's trajectory from point A to point B.
- Comparison waterfall charts — These charts are generally limited to just two values — a starting value and an ending value. In between, the factors that influenced the change between these two values are visually represented. Many waterfall charts follow this simple format to highlight the information on display.
Waterfall charts are data visualization tools that go beyond the information shown in a typical bar chart. These charts show an initial value, the positive and negative factors that influence that value over time, and the final value. You can use waterfall charts for a variety of purposes, from visualizing a profit and loss statement to analyzing sales over time.