We head back to our office and start our research. We spend about an hour and finally get a grasp on how waterfall charts work. Waterfall charts show how our starting value is affected by other data values. Once all the effects are plotted, we are left with our final value.

We are looking at how various expenses affect revenue. So, once all the expenses are deducted, we are left with our profit. So, revenue will be our starting value and profit will be the final value.

Our starting and final values will be full bars extending from zero upward on the y axis. Each of the values in between will begin at the y value of the previous bar. If the value is positive, the new bar will extend up, and the bar will extend down if the value is negative. Generally, the bars are color-coded to easily show which values are negative and which are positive.

Let's say our revenue is $1,000,000. The next value is operating expenses which totals to $250,000. The bar for operating expenses will start at $1,000,000, extend downward, and stop at $750,000. Fixed costs stand at $500,000. So, the bar will start at $750,000 and extend down to $250,000. The last bar is profit, and it will be calculated based on the other numbers. It is a positive number, so it will extend from $0 to $250,000. It's easy to see how the chart got its name. Each value moves downward like a waterfall.