Waterfall Chart Tool

Note: What Is a Waterfall Chart?

The Basics

A waterfall chart (also called a bridge chart or flying bricks chart) shows how an initial value is affected by a sequence of positive and negative changes, ending at a final value. Each step is drawn as a floating bar that starts where the previous step ended, so the chart reads like a running total. The first and last bars are usually anchored to the zero baseline, while intermediate bars float.

The classic example is a profit bridge: start with gross profit, subtract operating expenses, add interest income, subtract taxes, and land on net profit, with each bar visibly moving the total up or down.

Common Use Cases

• Profit bridges explaining how revenue becomes net profit or loss
• Budget variance analysis, walking from planned budget to actual spend
• Cash flow statements from opening balance through inflows and outflows
• Inventory or headcount changes across a period
• Sales funnel analysis, showing stage-by-stage drop-offs

Waterfall vs Alternatives

Choose a waterfall when the story is a sequence of additive changes between a starting and ending number. If you only need to compare final values across categories, a plain bar chart is simpler. If you want to see steady change over time, a line chart is more appropriate. For part-to-whole composition at a single moment, use a stacked bar. The waterfall shines precisely when the journey from A to B matters more than the endpoints themselves.

How to Use It Well

• Color code increases and decreases consistently, for example green for gains and red for losses
• Set a clear baseline so floating bars are easy to compare
• Label the start, end, and the largest steps, since exact values are hard to read from floating bars
• Keep the sequence in chronological or logical order; the narrative depends on it
• Limit the number of steps to around ten to preserve readability
• Highlight subtotal bars (like total revenue or final profit) with a distinct color

Fun Facts

• The waterfall chart was popularized in the 1990s by McKinsey & Company consultants
• It is sometimes called a "flying bricks chart" because the floating bars look like bricks in mid-air
• McKinsey publications such as "The McKinsey Way" helped spread the format through business
• Excel added a native waterfall chart type only in Excel 2016, after years of manual workarounds
• Waterfalls can be built with totals, subtotals, and connectors that trace the running value
• They are standard in earnings calls, where CFOs walk investors through profit bridges
• Some waterfall variants use a "stacked" layout for each step's positive and negative parts