Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

14. Financial Statement Analysis

Horizontal Analysis

Financial Accounting

14. Financial Statement Analysis

Horizontal Analysis

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Multiple Choice

Which of the following is an example of horizontal analysis?

Comparing a company's sales revenue in 2023 to its sales revenue in 2022 to determine the percentage increase.

Calculating the proportion of each expense item as a percentage of total sales for the current year.

Analyzing the industry average ratios to assess a company's performance.

Comparing a company's current assets to its current liabilities at a single point in time.

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Verified step by step guidance

Step 1: Understand the concept of horizontal analysis. Horizontal analysis involves comparing financial data over multiple periods to identify trends, such as growth or decline. It is typically expressed as a percentage change from one period to another.

Step 2: Review the options provided in the problem. Identify which option involves comparing financial data across different time periods, as this is the hallmark of horizontal analysis.

Step 3: Option 1 mentions comparing a company's sales revenue in 2023 to its sales revenue in 2022 to determine the percentage increase. This aligns with the definition of horizontal analysis because it compares data across two periods.

Step 4: Evaluate the other options to ensure they do not fit the definition of horizontal analysis. For example, calculating the proportion of each expense item as a percentage of total sales for the current year is an example of vertical analysis, not horizontal analysis. Similarly, analyzing industry average ratios and comparing current assets to current liabilities are not examples of horizontal analysis.

Step 5: Conclude that the correct example of horizontal analysis is the comparison of sales revenue between 2023 and 2022 to determine the percentage increase, as it involves analyzing data across different time periods.