Comparative Income Analysis: Horizontal

Horizontal analysis, or trend analysis, evaluates a business's financial performance over time by comparing line items in financial statements across multiple years.

Analysts can spot patterns, growth trends, or potential issues by comparing dollar and percentage changes from a base year.

For instance, consider that Sunrise Cereal Inc. had net sales of eight thousand dollars in the year two thousand sixteen, which rose to ten thousand dollars by two thousand twenty, recording a twenty-five percent increase.

This percentage change is calculated by subtracting the base-year amount from the current-year amount and dividing the result by the base-year amount.

This change shows the magnitude of growth in sales.

Current figures can also be expressed as a percentage of the base-year amount.

In this case, two thousand twenty sales were one hundred twenty-five percent of the two thousand sixteen sales.

This analysis helps identify patterns in cost and profit changes over time, providing useful insights for operational and strategic decision-making.