Horizontal Analysis - Overview, Key Features & Example

How Does Horizontal Analysis Work?

When you compare information in one financial statement against similar information from other reporting periods, you can better understand your financial position and performance.

By recognizing values that are trending upward or downward, you can learn what’s driving performance, efficiency and profitability.

The Importance of Horizontal Analysis in Financial Reporting Standards

GAAP requires your financial statements to be consistent and comparable to one another—and that they’re able to be analyzed against similar companies. This requires you to follow the same accounting methods and principles for every reporting period.

Key Takeaways

Horizontal analysis is the comparison of similar financial information from one period to another period.

Identifying historical financial trends can help you understand what’s affecting your financial performance, seize opportunities and improve efficiency.

Horizontal analysis—when performed unethically—can mislead stakeholders from the company’s true financial position, performance and outlook.

Horizontal Analysis Formula

You can express your horizontal analysis as change percentages or absolute values. If you’re using change percentages, your base period is 100%.

This is the formula for a horizontal analysis:

Horizontal Analysis (Value) = (Amount in Comparison Period - Amount in Base Period) / Amount in Base Period.

OR

Horizontal Analysis (%) = (Amount in Comparison Period - Amount in Base Period) / Amount in Base Period X 100.

Save hours on designing and formatting your financial reports with these free Reporting Templates for Excel.

Horizontal Analysis Is Just One Feature of Financial Reporting

What’s keeping you from reporting and uncovering trends faster?

Create accurate reports in less time with Vena’s Financial Reporting Software. Automate your workflows, conduct your variance analysis and discover what’s behind your business’s financial position.

Horizontal Analysis: What Is It and Why Is It Important?

How Does Horizontal Analysis Work?

The Importance of Horizontal Analysis in Financial Reporting Standards

Key Takeaways

Horizontal Analysis Formula

Horizontal Analysis Is Just One Feature of Financial Reporting

Recommended Resources

The Ultimate Guide to Budgeting and Forecasting

4 Best Practices For Creating a Variance Analysis Report in Excel

Free 12-Month Rolling Forecast Excel Template