Horizontal analysis is defined as what?

• A. compares data horizontally, by analyzing values of line items across two or more years; compare historical data
• B. looks at the vertical effects that line items have on other parts of the business and the business's proportions; compares items on financial statement in relation to each other
• C. uses important ratio metrics to calculate statistical relationships; central part of fundamental equity analysis; compares line-item data
• D. reports a company's financial worth in terms of book value

Answer: (A)

Horizontal analysis looks at financial data over multiple periods to spot trends in line items. It focuses on how each item changes from year to year, using both dollar changes and percentage changes to quantify growth or decline. This method helps you see patterns like revenue increasing consistently, costs rising faster than sales, or profits shrinking over time. For example, you’d compare the same item across two or more years to determine what happened from one period to the next. This is why it’s described as analyzing data across time and historical periods. By contrast, vertical analysis examines proportions within a single period, ratio analysis compares relationships between items, and reporting book value is about the stated worth of assets rather than changes over time.