Horizontal Financial Analysis
Compares each component in the financial statements of a business over a two-year period. For example:
If sales in 20*8 were £768 000 and in 20*9 they were £812 000, the percentage change is 5.73%.
If net operating expenses in 20*8 were 134 000 and in 20*9 they rose to £141 000, the percentage change is 5.2%.
Although the actual calculations are fairly straightforward, the skill in gaining management knowledge relies on the ability to interpret and analyse the changes shown. This enables remedial action to be taken if results indicate that this is necessary.