They are also in a position to determine growth patterns and trends, such as seasonality. Therefore, analysts and investors can identify factors that drive a company’s financial growth over a period of time. Horizontal analysis is used to improve and enhance these constraints during financial reporting. On the other hand, comparability constraint dictates that a company’s financial statements and other documentation be such that they can be evaluated against other similar companies within the same industry.
Consistency constraint here means that the same accounting methods and principles must be used each year since they remain constant over the years. Horizontal Analysis in Reporting StandardsĪs outlined in the Generally Accepted Accounting Principles (GAAP), the rules for the preparation of financial statements require financial statements to be consistent and comparable to compare and evaluate companies and their financial performance properly. The horizontal analysis technique uses a base year and a comparison year to determine a company’s growth.It helps determine a companies’ growth and financial position versus competitors.Horizontal analysis is the comparison of historical financial information over various reporting periods.
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