Horizontal Analysis.

 Horizontal analysis, also known as trend analysis, is a financial analysis technique that compares financial data over time to identify trends and patterns. In horizontal analysis, financial data for two or more periods is compared to determine the percentage change or difference between the periods.

The formula for horizontal analysis is as follows:

Horizontal Analysis = ((Current Period Amount - Previous Period Amount) / Previous Period Amount) x 100

Where:

• Current Period Amount is the amount of a specific line item on the financial statement for the current period being analyzed.
• Previous Period Amount is the amount of the same line item on the financial statement for the previous period being analyzed.

Horizontal analysis can be applied to various financial statements such as the income statement, balance sheet, and cash flow statement. It is used to identify trends and patterns in a company's financial performance over time, such as changes in revenue, expenses, assets, liabilities, and cash flow.

Horizontal analysis is useful in identifying areas where a company's financial performance has improved or declined over time. For example, if a company's revenue has increased by 10% over the past year, this indicates positive growth. On the other hand, if a company's expenses have increased by 20% over the same period, this indicates negative growth.

Horizontal analysis can also be used to compare the financial performance of a company to its peers or industry benchmarks. This helps in identifying areas where a company may be performing better or worse than its competitors.

It is important to note that horizontal analysis should be used in conjunction with other financial analysis techniques, such as vertical analysis or ratio analysis, to gain a comprehensive understanding of a company's financial performance.