Question

Managerial accounting quetion:

How do you perform a thorough horizontal analysis? I am comparing two companies hugo boss and ralph lauren.

Answer 1

Horizontal analysis is analysing or comparing the change in different accounts of the company. It helps in analyzing the change between the two or more years. Horizontal analysis can be done for the balance sheet as well as teh income statement. To analyze the change in different accounts of the income statement as well as the balance sheet and comparing it with the other company.

Horizontal analysis = (Current year - Previous year) / Pervious year.

This helps in comparing the two companies in terms of its growth, solvency, profitabilty.It also helps in the growth of the company from the last year

Example: The sales for the year 2016 for a company is 12000 and the sales for the year 2017 is 14000. So, when calculating the change or the horizontal analysis we would calculate:

= (sales of 2017 - sales of 2016) / Sales of 2016

= (14000-12000)/12000

= 16.67%

So, the increase in the sales in 2017 is 16.67% as compared to 2016.