Which analysis type evaluates the percentage change in line items from one period to the next?

Which analysis type evaluates the percentage change in line items from one period to the next?

• A. Vertical analysis
• B. Horizontal analysis
• C. Ratio analysis
• D. Trend analysis

Answer: (B)

Horizontal analysis compares line items across consecutive periods to measure percentage changes from one period to the next. It highlights how each item grows or shrinks over time by expressing the difference as a percentage of the prior period, making trends and variances easy to see. The calculation is simple: (current period amount − prior period amount) ÷ prior period amount, shown as a percent. This approach directly answers the question by focusing on period-to-period change. Vertical analysis, in contrast, shows each item as a share of a base within the same period, revealing composition rather than change. Ratio analysis looks at relationships between two or more items, not changes over time. Trend analysis examines patterns across many periods to identify longer-term directions, but the specific idea of measuring percentage change from one period to the next aligns with horizontal analysis.

Horizontal analysis compares line items across consecutive periods to measure percentage changes from one period to the next. It highlights how each item grows or shrinks over time by expressing the difference as a percentage of the prior period, making trends and variances easy to see. The calculation is simple: (current period amount − prior period amount) ÷ prior period amount, shown as a percent. This approach directly answers the question by focusing on period-to-period change.

Vertical analysis, in contrast, shows each item as a share of a base within the same period, revealing composition rather than change. Ratio analysis looks at relationships between two or more items, not changes over time. Trend analysis examines patterns across many periods to identify longer-term directions, but the specific idea of measuring percentage change from one period to the next aligns with horizontal analysis.