Horizontal Analysis
Horizontal Analysis
Investors and managers need to understand how well a company is doing in order to make decisions. Investors have to make the decision whether or not they want to invest or sell their current investment. Management needs to know what moves to make in order to improve the future performance of the company.
Horizontal analysis is a historical comparison of the financial statements. It compares financial reports from one accounting period to another.
The main point of performing a horizontal analysis on your financial statements is to see how things have changed from one period to the next.
The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the previous period and the items on the statements for all present periods are compared with items on the statements of the base period. The changes are generally shown both in pesos and percentage.
Formula of horizontal analysis or Increase (decrease) method
Step 1: Peso change = Amount of the item in present year – Amount of the item in previous year.
Step 2: Percentage change = Peso Change ÷ Amount of the item in the previous year x 100.
Understanding Horizontal Analysis
The goal is to compare the figures of the current period with that of the past period. This helps the company and its shareholders analyse their performance and find out areas of improvement.
Horizontal analysis is done for both income statements and balance sheets. The idea is the same. The figures for the different heads under the income statements and the balance sheets are placed side-by-side so that the reader can compare the two and understand how the company is doing. It also includes two more columns: the column denoting actual numerical change over two periods and another denoting percentage change over the two periods. The first column gives the difference between the past period and the current period, while the percentage column shows what percentage of the
Investors and managers need to understand how well a company is doing in order to make decisions. Investors have to make the decision whether or not they want to invest or sell their current investment. Management needs to know what moves to make in order to improve the future performance of the company.
Horizontal analysis is a historical comparison of the financial statements. It compares financial reports from one accounting period to another.
The main point of performing a horizontal analysis on your financial statements is to see how things have changed from one period to the next.
The statements for two or more periods are used in horizontal analysis. The earliest period is usually used as the previous period and the items on the statements for all present periods are compared with items on the statements of the base period. The changes are generally shown both in pesos and percentage.
Formula of horizontal analysis or Increase (decrease) method
Step 1: Peso change = Amount of the item in present year – Amount of the item in previous year.
Step 2: Percentage change = Peso Change ÷ Amount of the item in the previous year x 100.
Understanding Horizontal Analysis
The goal is to compare the figures of the current period with that of the past period. This helps the company and its shareholders analyse their performance and find out areas of improvement.
Horizontal analysis is done for both income statements and balance sheets. The idea is the same. The figures for the different heads under the income statements and the balance sheets are placed side-by-side so that the reader can compare the two and understand how the company is doing. It also includes two more columns: the column denoting actual numerical change over two periods and another denoting percentage change over the two periods. The first column gives the difference between the past period and the current period, while the percentage column shows what percentage of the