What Horizontal Analysis does is compare the net income of the current period with the net income of the prior period.
This Analysis is used to determine how a company is growing overtime. Also to compare a company's growth rates in relation to its competitors and industry.
The formula for Horizontal Analysis has two process:
First you have to establish if the company net income increase or decrease from the prior year to the current year:
(Net income Current Year)-(Net income Prior Year)=(Increase or Decrease Amount)
Than you would divide the difference of increase or decrease amount to the prior year net income.
Difference of Increase or Decrease Amount/Net Income Prior Year=Percent Amount
This would give you the percentage of the company growth rate.
Here’s an example how to use the horizontal Analysis:
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