Interpretation Of Horizontal Analysis Of Income Statement

To get a clear picture of the performance of our business we need to do a horizontal analysis of each item in our income statement.

Interpretation of horizontal analysis of income statement. Here we have the yoy growth rates of colgate s income statement from 2008 until 2015. Horizontal analysis of financial statements can be performed on any of the item in the income statement balance sheet and statement of cash flows. Let us now look at the horizontal analysis of colgate. Trend analysis for income statement items using excel.

A complete horizontal analysis of income statement might tell us that while our. Horizontal analysis is the method of function statement analysis which represents the percentage income and percentage decrease. We calculate the growth rate of each of the line items with respect to the previous year. Comparative retained earnings statement with horizontal analysis.

In above analysis 2007 is the base year and 2008 is the comparison year. All items on the balance sheet and income statement for the year 2008 have been compared with the items of balance sheet and income statement for the year 2007. Horizontal analysis doesn t conclude with finding the change in sales over a period. If analysis reveals any unexpected differences in income statement accounts management and accounting staff at the company should isolate the reasons and take.

Colgate horizontal analysis example. In the horizontal analysis the financial data of the companies is compared to the base of the comparative financial statement. Vertical analysis of colgate s income statement. Likewise we can do the same for all the other entries in the income statement.

Let us see the example of a vertical analysis of colgate s income statement. For example this analysis can be performed on revenues cost of sales expenses assets cash equity and liabilities. Understanding horizontal and vertical analysis is essential for managerial accounting because these types of analyses are useful to internal users of the financial statements such as company management as well as to external users. The cost of sales has been in the range of 41 44 historically.

In the below snapshot we have divided each income statement line item with net sales for the period between 2007 to 2015. In the relative financial statement of the companies. Horizontal analysis of an income statement.