Horizontal analysis can be conducted when the information is available for at least two years. This analysis is also called Trend analysis. This is quite helpful in determining the performance and growth of the company over several numbers of reporting periods.
Financial analyst often takes support from horizontal analysis to evaluate the revenue, expenses, liabilities and assets. This enables to determine the deteriorating performance and give an alarming message to the management responsible for making top-level decisions.
Example
Alpha is engaged in the production of electronic items since 1990. The following data is available for its revenue, operating profit, and finance cost for the last 05 years.
| Description | 2015 | 2014 | 2013 | 2012 | 2011 |
| $m | |||||
| Revenue | 2,600 | 2,300 | 2,250 | 2,210 | 2,520 |
| Operating profit | 320 | 296 | 265 | 345 | 375 |
| Finance cost | 103 | 73 | 71 | 65 | 23 |
Required: Conduct a trend analysis, horizontal analysis of the above data.
Solution/ Answer
Alpha Industries
Horizontal Analysis / Trend Analysis
| Description | 2015 | 2014 | 2013 | 2012 |
| {1bb28fb76c3d282be6cfd0391ccf1d9529baae691cd895e2d45215811b51644c} Change | ||||
| Revenue | 13 | 2.22 | 1.81 | 12.3 |
| Operating profit | 8.12 | 11.7 | (23.19) | (8) |
| Finance cost | 41 | 2.82 | 9.23 | 182.61 |