What is the Best Procedure for Understanding Horizontal Analysis?

Horizontal analysis is a necessary procedure that is used to compare line items or ratios in the financial statements of a company over a   given period. Firms use this trend analysis to help them build models for predicting future financial performances. They will also need this kind of analysis to look and identify any abnormality in the books of accounts and take the corrective actions. Investors would use the trend analysis for 5 years in most cases, often as part of a comprehensive guide to financial analysis tools and techniques aimed at gaining long-term insights and informed investment decisions.

Examples of Horizontal Analysis

Let’s say a company had sales of $ 500,000 in 2018 and 475,000 in 2019. This represents a -5% change from 2018 to 2019. The cost of goods sold was 269,000 and 265,000 in 2019 and 2018, respectively. There was a -1.49 change for the respective years.

For the above, the gross profit would be $231,000 in 2019 and 210,000 in 2018, representing -9.09% changes. Without even going further in the income statement items, one can deduce a few things here. One, we are comparing two years where a difference in each of the line items is shown on the far right — a key technique in understanding income statements for business owners in Singapore, helping them identify profitability trends and operational changes year over year.

Please note

With the horizontal analysis, you will compute the percentage change in every item in the income statement indicated on the right. Observe the profit and net income. They should give you a hint on what contributes to the decline in the report.

Increases and decreases

Some items will increase while others will decrease by specific percentages. There are items on the list which have more significant impacts on the overall performance. For instance, in the above, a decrease in sales would have a considerable effect on net income.

From the above, we can see that horizontal analysis is essential to the investors because it puts the facts before them, making it easier to analyze the improvements or lack thereof, much easier. The shareholders will consequently understand the percentage of changes in the line items. From the information derived in the statements, all the interested parties will demand an explanation from the management on what they intend to do to fix the problems in the financial statements.

Case Studies of Singaporean Companies:

Prepare a set of comprehensive case studies (based on hypothetical or pseudonymized data) describing the ways to use horizontal analysis in relation to the financial statements of the actual companies operating in Singapore. These case studies might involve the determination of revenue growth trends in a local retail chain, expenses control in a Singaporean manufacturing company, or utilization of the assets in a tech start-up. This content will offer useful, practical concepts that can be applied to in Singapore since the practical spirit of horizontal analysis will be illustrated in a local perspective view.

These examples will also reflect the best advanced financial analysis certification with practical case studies, enabling learners to connect theory with real-world insights. Additionally, the case studies will emphasize the importance of tracking cost of goods manufactured in accounting, particularly for companies aiming to improve operational efficiency and profitability.

Interactive Horizontal Analysis Calculator with Interpretation Guide:

Design a Web based interactive calculator through which the user can enter the financial data of two or more periods (e.g., revenue, cost of goods sold, net income), and produce instant dollar and percentage change complementary of horizontal analysis. More importantly, the tool must also present an Interpretation Guide that interprets what various trends could mean ( e.g., huge revenue growth, out-of-proportion expense increases, dwindling profits) and recommends where more examinations could be conducted or some means of strategic intercession that could be applied to a business in Singapore. This interactive tool would substitute the effort of making horizontal calculation and interpretation manageable and direct

Aligning with the needs of professionals enrolled in basic and advanced finance programs for professionals or those pursuing a practical financial modeling certification in Singapore.