Financial

Appraisal

Instructor: Sahar Idrees

BS 8TH

Department of Commerce
GCWUF
Horizontal
Analysis
Financial Statement
Analysis
▶ Financial statement analysis (or financial analysis) is
the process of reviewing and analysing a company's
financial statements to make better economic
decisions
▶ Tools of financial statement analysis
 Horizontal analysis
 Vertical analysis
 Ratio analysis
 Graphical analysis
 Regression analysis
 Horizontal
Analysis

• ▶ Horizontal analysis also

known as trend analysis is an
analysis of the year-to year
change in each financial
statement item
• ▶ Horizontal analysis (or trend
analysis) refers to studying the
behaviour of individual financial
statement items over several
accounting periods
Purpose of Horizontal
Analysis
▶ The purpose of horizontal analysis is to determine how each item
changed, why it changed, and whether the change is favourable
or unfavourable
▶ It’s a way for analysts to compare accounts or performance metrics
over time to see if the company is improving or declining
 Horizontal Analysis

Balance
Illustration 14-5

Sheet
These changes
suggest that the
company expanded its
asset base during
2007 and financed
this expansion
primarily by
retaining income
rather than assuming
additional long-term
debt.
Horizontal Analysis

Income Illustration 14-6

14-5

Statement
Overall, gross
profit and net
income were up
substantially. Gross
profit increased
17.1%, and net
income, 26.5%.
Quality’s profit
trend appears
favorable.
 Horizontal Analysis
Retained
Earnings
Statement Illustration 14-7

We saw in the horizontal analysis of the balance sheet that ending retained
earnings increased 38.6%. As indicated earlier, the company retained a
significant portion of net income to finance additional plant facilities.
 Horizontal Analysis
Illustration: Summary financial information for
Rosepatch Company is as follows.

Compute the amount and percentage changes in 2011 using

horizontal analysis, assuming 2010 is the base year.
2011
Solution