Horizontal Analysis

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:
Company A:

• 2015 Net Income: $96,350.00
• 2016 Net Income: $125,589.00

Company B:

• 2015 Net Income: $350,756.00
• 2016 Net Income: $310,278.00

Company C:

• 2015 Net Income: $15,000.00
• 2016 Net Income: $40,250.00

First you would solve for the company net income increase or decrease from the prior year to the current year:

1. Increase of $29,239.00
2. Decrease of $40,478.00
3. Increase of 25,250.00

After you would solve to get the percent amount by dividing the difference of increase or decrease amount to the prior year net income.

1. $29,239.00/$96,350.00= 30%
2. $40,478.00/$350,756.00= 12%
3. $25,250.00/$15,000.00= 168%

The Results show that Company A growth has increase a medium rate while Company B rate has decrease 12%. Company C has grown rapidly during the year. If these company were competing in the same market. The results show that Company B has been losing customer to Company A and C. Company C looks to be a threat to the two company as it establish its self as a true contender.