Question

Horizontal analysis involves:

a. Comparing individual financial statement line items over time.
b. Comparing individual financial statement line items to some benchmark, typically similar competitors’ financial statement line items.
c. Comparing individual financial statement line items with each other to understand the relationships between line items.
d. Comparing individual financial statement line items that have been arranged horizontally from highest to lowest dollar amounts.

Answer 1

a. Comparing individual financial statement line items over time.

Step-by-step explanation:

Horizontal analysis of financial statements involves comparing financial information contained in the current period with the historical records of the same company to identify trends. The main objective is to identify if the ratios have been increasing, decreasing or fluctuating a lot. This is useful in analyzing and making decisions whether a company should make a major change in one area or another.