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Horizontal Analysis
Term category: Finance/Accounting
In 10 words or less: A method of analyzing financial statements that involves comparing prior periods.

Definition: Horizontal analysis is an accounting term that refers to comparing one line item over multiple periods.

Example:

                               2003               2004                 2005
Sales                    100%              100%                 100%
COGS                   60%                30%                    25%

Gross margin         40%               70%                   75%

In this example, we see that gross margins are increasing from year to year.  This is a healthy trend for the business and we would hope it continues.

 

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