In this video on Horizontal Analysis of Financial Statements, here we provide you with its definition and formula along with interpretation of Horizontal Analysis.
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One of the most important techniques for finding out how a firm is doing financially is Horizontal Analysis of Financial Statements. It is used for year – over – year (YoY) or quarter – over – quarter (QoQ) trends assessment.
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Horizontal Analysis Formula = [(Amount in comparison year – Amount in base year)/ Amount in base year] x 100.
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#1 – A firm can represent fairly good hold on its financial affairs from the income statement and balance sheet. But it is your responsibility as an investor to verify each item and see why there is a difference.
#2 – By modifying a few things here and there, firms can inflate profit or show undervalued statement. But if you pay attention to details, you’d be able to find out what’s going on in the firm.
#3 – In comparison to other ratios, this method gives investors an general picture of where a firm stands in financial matters, what they are trying to do with the funds and how profitable the firm can be in the near future.
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Horizontal Analysis of Financial Statements
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Horizontal Analysis of Financial Statements
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