Horizontal Analysis: What Is It and Why Is It Important?
Horizontal analysis is comparing financial information from one reporting period (your base period) to similar financial information from other reporting periods to analyze historical trends.
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.
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