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what are the main benifits of Horizontal analysis of financial statements
Horizontal analysis can be performed in one of the following two different methods i.e. absolute comparison or percentage comparison.
  • Absolute Comparison:
One way of performing horizontal analysis is comparing the absolute currency amounts of some items over the period of time. For example, cash in hand at the end of an accounting period can be compared to other accounting periods. This method is helpful in identifying the items which are changing the most.
  • Percentage Comparison:
In the second method of horizontal analysis, percentage differences in certain items are compared over a period of time. The absolute currency amounts are converted into the percentages for the purpose of comparison. For example, a change in cash from $5,000 to $5,500 will be reported as 10% increase in cash. It can also be reported as 110%, which means that the cash is 110% of the cash at the end of previous accounting period. This method is useful when comparing performance of two companies of different scale and size.
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