Question

Horizontal analysis compares the components of the balance sheet with a base item, expressing various components as percentage of the base. True or False

Answer 1

False. Horizontal analysis compares financial statement items over a specific time period to identify trends and changes in their values.

Step-by-step explanation:

Horizontal analysis compares financial statement items over a specific time period to identify trends and changes in their values. It does not involve comparing components of the balance sheet with a base item expressed as a percentage.

For example, in horizontal analysis, you may compare the total assets of a company in 2019 with its total assets in 2020 to see if there was an increase or decrease. This analysis helps to understand the financial performance and position of a company over time.