April 22, 2012
Methods of Analysis
In this report, we will revisit and evaluate the three methods of analysis: horizontal, vertical, and ratio. Next, we are to summarize each method, and discuss how the financial information is used to make a particular decision. Then, provide a scenario in a health care situation in which a given method of analysis might be used. I will explain each analysis beginning in order of the Horizontal Analysis with the Vertical Analysis and lastly the Ratio Analysis. Each analysis is different from the next and although the horizontal and vertical are similar, they show different aspects of a company by year. A ratio analysis is a combination of many different analyses and will be gone through individually so they are understandable. First explained is the horizontal analysis. “The Horizontal analysis, also called trend analysis, which refers to studying the behavior of individual financial statement items over several accounting periods. These periods may be several quarters within the same fiscal year or they may be several different years. The analysis of a given item may focus on trends in the absolute dollar amount of the item or trends in percentages.” (Edmonds, T.; p. 343). You may easily see a horizontal analysis as an income statement for a business by creating a list of all assets for a period of more than one year. “Showing changes in dollar form helps the analyst focus on key factors that have affected profitability or financial position.” (http://www.accountingformanagement.com). This method of financial analysis may have common use in a business when keeping track of their revenue by year to show profit or loss. A horizontal analysis may provide a comparative analysis over several years in a balance sheet or income statement. This will provide a show of difference in percentage versus actual dollar amounts that a vertical analysis would provide. Next,...