Horizontal Analysis of Financial Statements

The selling and marketing expenses increased by 7.4% from Rs 43,438 million in 2023 to Rs 46,648 million in 2024. The general and bookkeeping administrative expenses also grew by 2.1% from Rs 39,426 million to Rs 40,250 million. The profit before tax marginally declined by 0.3% from Rs 98,438 million in 2023 to Rs 98,147 million in 2024. The net cash generated from operating activities for the year ended March 31, 2024, was Rs 176,216 million compared to Rs 130,601 million for the year ended March 31, 2023. Fortunately, tools like Google Sheets or Excel allow you to set up templates, so you can forget about the calculations and focus on analysis. Using Layer, you can also automate data flows and user management, so you can gather the data automatically, carry out the analysis, and automatically share results and reports with the right users.

• By analyzing financial statements, your company accurately spots trends over time and identifies the mix of assets and liabilities it has to deal with within a certain period.
• Horizontal analysis can also be applied to the balance sheet to evaluate changes in assets, liabilities, and shareholders’ equity over multiple periods.
• Companies can also use this tool to analyze competitors to know the proportion of revenues that goes to advertising, research and development, and other essential expenses.
• Obviously financial statements for at least two accounting periods are required, however, using a larger number of accounting periods can make it easier to identify trends within the financial data.

Company Valuation: How to Value Your Business?

By setting up your spreadsheet, calculating percentage changes, visualizing data, and interpreting results, you can make informed decisions that drive business growth. Horizontal analysis is a process used to analyzed financial statements by comparing the specific financial information for a particular accounting period with information from another period. This makes it easy to see how your company performs over time and identify trends or patterns. For example, you might compare a company’s revenue from last year to its revenue from this year or its net income from last year to its net income from this year.

Step 2: Gathering Historical Financial Data

Horizontal analysis may be executed in a manner that makes a company’s financial health look way better than it is. It is mostly done by companies when presenting external stakeholders with information about the business in a bid to deceive them. Perhaps, the most important aim of financial analysis is identifying your company prospects through trends for both the near future and long-term periods. Financial statement analysis presents you with your firm’s liquidity, debt, and profitability, emerging problems, and strengths.

Table for General Terms

Horizontal or trend analysis is the historic review of the financial statements of a company for a specified period. Horizontal analysis is the technique of evaluating financial statements to know the changes in the amounts of corresponding financial items over a period. Conduct a vertical analysis and a ratio analysis to https://www.bookstime.com/articles/activity-based-costing complement our horizontal analysis and gain a deeper understanding of our financial position and performance. The base year is the starting point of the analysis, and the comparison year is the end point.

Common Mistakes and How to Avoid Them

From 2023 to 2024, Reliance Industries’ revenue increased by Rs.1,00,000 crores, or 20%. The horizontal analysis formulas are employed to illustrate the revenue growth over time. Now that you have the percentage change values for your chosen variables horizontal analysis formula – both for your company and others in the same industry – it’s time to analyze your company’s values and those of your competitors. This will allow you to interpret these results within as comprehensive a context as possible.