how are horizontal analysis and trend analysis related?

Expert Solution

1) Horizontal analysis is a financial statement analysis technique that shows changes in the amounts of corresponding financial statement items over a period of time. It is a useful tool to evaluate the trend situations.

2) A trend analysis is a method of analysis that allows traders to predict what will happen with a stock in the future. Trend analysis is based on historical data about the stock's performance given the overall trends of the market and particular indicators within the market.

3) Horizontal analysis involves the calculation of percentage changes from one or more years over the base year dollar amount. The base year is typically the oldest year and is always stated as 100%.

4) Trend analysis can be also used for word usage, how words change in the frequency of use in time , in order to find neologisms or archaisms. It relates to diachronic linguistics, a field of linguistics which examines how languages change over time. Google provides tool Google Trends to explore how particular terms are trending in internet searches. On the other hand, there are tools which provide diachronic analysis for particular texts which compare word usage in each period of the particular text.

5) When trend analysis is being used to predict the future, keep in mind that the factors formerly impacting a data point may no longer be doing so to the same extent. This means that an extrapolation of a historical time series will not necessarily yield a valid prediction of the future.

6) A manager, on the other hand, is concerned with the day-to-day operations of the company, so he uses this evaluation technique to pinpoint areas for improvement. For instance, a manager might compare cost of goods sold and profit margin over a two or three-year span to see how efficient the company is becoming. This comparison of income statements will give the manager not only a benchmark for future performance; it will also help him understand what needs to be changed in the future.

ekkarill92 answered 1 year ago

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