Which of the following statements about horizontal analysis is correct?
A) it requires a minimum of 3 years of data to provide meaningful analysis.
B) it compares numbers reported on a financial statement to others on the same statement.
C) it compares numbers reported on the financial statements in the current period with those from the previous period.
D) it determines the profitability of an entity.

Question

Quizplus · Accepted Answer

Horizontal analysis compares the financial statements of an entity in the current period with those in the previous period to identify trends and changes over time. It does not require a minimum of 3 years of data, and it is not used to determine profitability. Option B describes vertical analysis, which compares numbers on a financial statement to a base such as net sales or total assets.

Which of the Following Statements About Horizontal Analysis Is Correct