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In a horizontal analysis of financial statements, what is being measured?
AEach line item's change in amount and percent across years
BEach line item as a percentage of a base total within one year
CThe ratio of current assets to current liabilities
DNet income divided by average stockholders' equity
Answer & Solution
Correct answer: A. Each line item's change in amount and percent across years
1. Horizontal analysis places two or more years side by side.
2. It notes the increase or decrease in both the dollar amount and the percentage of each line item.
3. Expressing each line as a percentage of a single-year total is vertical analysis (option B).
_Source: Jonick, Principles of Financial Accounting (CC BY-SA 4.0), §7.3.1 "Horizontal analysis", p.287_
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