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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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What is horizontal analysis? Vertical analysis? Should both horizontal and vertical analyses be done? Why?

To determine

Explain horizontal and vertical analysis. Also, state if these analysis should be done.

Explanation

Financial statement analysis

Financial statements are analyzed to understand relationship between different items in the financial statements during the course of time. These relationships are studied to evaluate the past performance of the company as well as scope for future growth.

One of the techniques of financial statement analysis is common-size analysis where each item in the financial statement is expressed in terms of percentage to compare present statement with the statement of the previous year. Horizontal and vertical analyses are two forms of analysis under common-size analysis. They are explained as follows:

  • Horizontal analysis: It is also commonly referred to as trend analysis...

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