Question

Why is horizontal analysis useful in the analysis process of two businesses?

Why is horizontal analysis useful in the analysis process of two businesses?

Homework Answers

Answer #1

Horizontal analysis is useful in the analysis process due to following reasons:-

  • It is helpful in trend analysis by comparing financial data provided in financial statements
  • It compares various ratios of two businesses.
  • It measures financial and operational performance of an organization.
  • It increases the efficiency of planning process of any organization.
  • It is helpful to check whether company's liquidity is good enough or not.
  • It also checks company's ability to repay its debts.
  • It promotes better decision making by management of an organization.
  • It increase operational efficiency level by analysing sales, production and inventory available in the business.
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