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Bookkeeping & Accounting
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Horizontal Analysis

7/30/2017

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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.
 
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