Question

I tried to calculate Horizontal analysis on balance sheet. Under current assets, Goodwill was $60237 in...

I tried to calculate Horizontal analysis on balance sheet. Under current assets, Goodwill was $60237 in Dec 2017, but nothing was in 2016. How do I calculate this?

If the percentage should be (New year amount - Old year amount)/ Old year amount*100

The calculation gave out error message for Goodwill. Thanks

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Answer #1

The problem faced by you is a conceptual mathematical issue. Ofcourse when you divide a value by ZERO, the result will be an error (Infinity).

Horizontal Analysis is used to find out the trend between 2 or more periods on the basis of a 'base period'. If the base year amount is ZERO, horizaontal analysis is of no use.

No percentage can be calculated when the amount of base year is ZERO valued amount. In your case, Goodwill amount in base year 2016 is ZERo, and hence you are not required to calculate its percentage for horizontal analysis.

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