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:
Amortization is the process of allocating the cost of an asset over a period of time. It also refers to the repayment of loan principal over time. Typically amortization is used when you are requiring an asset that has a big price tag that you would pay over time. For example, if you were going to take out new machinery for your business or something personal like taking out a mortgaging for a house.
An Amortization Schedule shows the beginning and ending balances of the loan and the amount of payment that is applied to the principal and interest during each payment period. The amortization schedule would show the amount that the loan would be paid off during an amount of time. Each installment goes toward a portion of the loan’s interest and its principal.
Some benefits of using amortization schedule when considering making a big purchase are:
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