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Understanding Key Financial Analysis Tools: Horizontal Analysis, Irregular Items, and Financial Ratios DQ1

Discussion question 1 on financial analysis tools.

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Understanding Key Financial Analysis Tools: Horizontal Analysis, Irregular Items, and FinancialRatiosDQ1What is horizontal analysis? What is the value in using horizontal analysis? Why would a company usethis analysis? What does thisanalysis tell you?What is horizontal analysis?Horizontal analysis is, “…a technique for evaluating a series of financial statement data over a period oftime”(Kimmel, Weygandt, & Kieso,2007,p.474).The purpose of horizontal analysis is determiningincreases or decreases that have taken place.What is the value in using horizontal analysis?The value in using horizontal analysis is the same as why a company would use horizontal analysis;trends or changes over a period of time can be detected, thus allowing the company to makeadjustments if needed.Why would a company use this analysis?This helps the analyst to compare the performance of the company and decide if there is asignificant change in the company performance overdifferent periods and then analyze suchchanges to see if an action needs to be taken.What does this analysis tell you?A horizontal analysis provides information of the company’s financial status. Trends or dangers can beidentified and further investigated.

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