Answer to Question #246426 in Accounting for samantha

Question

Directions: Research on the following financial analysis tools and give examples:

1. Horizontal Analysis of FS

Answer 1

Solution:

Horizontal analysis of financial statements is a technique for examining a company's financial records throughout time. It's commonly shown as a percentage change over the same line item in the base year. Users of financial statements can easily discover trends and growth patterns using horizontal analysis.

Horizontal analysis is the process of comparing historical financial data from different reporting periods. It aids in determining a company's growth and financial status in comparison to its competitors. To determine a company's growth, the horizontal analysis technique uses a base year and a comparison year.

 

The formula for horizontal analysis is as follows:

Horizontal Analysis (%) = $[\frac{(Amount\; in\; comparison\; year - Amount \; in\; base \; year)}{Amount \; in\; base\; year}] \times100$