What is the importance and purpose of comparative analysis (vertical and horizontal)?© BrainMass Inc. brainmass.com October 2, 2020, 5:33 am ad1c9bdddf
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What is the importance and purpose of comparative analysis (vertical and horizontal)?
Comparative financial statements provide information necessary in order to analyze the direction of change in the business. To know whether the business is moving in a favourable or an unfavorable direction, the figures of the current year are compared with those from the previous years. The amount and percentage of increase or decrease are calculated and compared, and then actions are taken to improve the performance of the business.
Horizontal analysis involves preparation of comparative financial ...
This solution provides a 350-word description that explains the importance and purpose of both vertical and horizontal analyses, and the benefits of incorporating both and thus using a comparative analysis when preparing financial statements. The solution includes examples and a reference for further reading.