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Horizontal Analysis Interpretation
Horizontal analysis is the method of function statement analysis which represents the percentage income and percentage decrease. In the relative financial statement of the companies. In the horizontal analysis, the financial data of the companies is compared to the base of the comparative financial statement for fixing the problems within the business. I am sure you know the Basic Golden Rules of Accounting
Horizontal Analysis Formula
AS you know the horizontal meaning, That is Right to Left Or left to right. Also Called Parallel or smooth figures analysis. So here we check Period over Period change. Basically we checked the growth rate in between to comparison figures. It may be
- One year to another year
- One Qtr to Another Qtr Change
- 1st Half year to 2nd Half Year
An example is mentioned below:
Common size statements for Horizontal Analysis
In the horizontal ratio analysis common size of financial statements are used, in which the data is arranged in the horizontal form in figure and percentage that the analyst easily fixed the data and compare the change in a statement on yearly bases. In which the data on yearly bases provided side by side. Developing your interpersonal skills and improvement in Ways of Knowing you can better understand financial statement analysis.
This analysis helped companies to fix their goals and also helpful for the shareholders to high light the weakness of the business programs and to find the way for their improvement. The horizontal analysis is conducted on both balance sheet and profit/ loss account.
Purpose of the horizontal analysis
Horizontal analysis is considered the most important the financial statement analysis and for the annual reports.
- Horizontal analysis is used for annual budget making process.
- Horizontal is helpful for shareholders to check their performance and also to improve their weak areas.
- Horizontal is very useful for investors to find the percentage change in the financial position of the business.
- Horizontal vertical analyzed to a shareholder that if no any change occurs into a financial statement of the business they should fix their future and also make more investment for a high gain of profits.
- Horizontal vertical is used to find have each item in the financial statement is changed, why these items are changed and also determined these changes are favourable or unfavourable for the business.
Difference between Horizontal and Vertical analysis
- In the HORIZONTAL analysis, the analyst always compares the financial statement of the business for the more than two accounting periods. This is data are arranged in side by side column on yearly bases.
- In VERTICAL analysis is done by an analyst only for one accounting period and in which data is arranged in the column form in figures and percentage. Vertical analysis is also called static analysis.
- In the vertical analysis, the assets, liabilities, and equity is presented in the form of a percentage. The vertical analysis shows the financial position of the business on based of lined up numbers. The horizontal analysis compares the figures under the head of financial statement and vertical analysis compared the numbers and percentage change in line up the total of items with reference to the previous year.