A technique for analyzing the percentage change in individual financial statement items from one year to the next in known as:

Question

Options

• AVertical analysis
• BHorizontal analysis
• CFraction analysis
• DRatio analysis

• A
  6% (2)
• B
  71% (25)
• C
  17% (6)
• D
  6% (2)

Explanation

Horizontal analysis tracks changes in financial statement line items across multiple periods, expressing those changes as both dollar amounts and percentages - making it ideal for spotting trends over time (e.g., "revenue grew 12% from Year 1 to Year 2").

Why the distractors are wrong:

• A. Vertical analysis analyzes items as a percentage of a base figure within the same period (e.g., each income statement line as a % of revenue), not period-to-period change.
• C. Fraction analysis is not a recognized financial analysis technique.
• D. Ratio analysis compares relationships between line items (e.g., current ratio = current assets ÷ current liabilities), not the percentage change of individual items over time.

Memory tip: Think of the word "horizontal" as moving across time - left to right across columns on a spreadsheet, each column representing a different year. Vertical analysis moves down a single column.

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