Question

What is the main difference between trend analysis and horizontal analysis?

1) Trend analysis focuses on analyzing changes over time, while horizontal analysis compares financial data across different periods.
2) Trend analysis compares financial data across different periods, while horizontal analysis focuses on analyzing changes over time.
3) Trend analysis is used to analyze financial data for a single period, while horizontal analysis is used to compare financial data across different periods.
4) Trend analysis is used to compare financial data across different periods, while horizontal analysis is used to analyze changes over time.

Answer 1

The main difference is that trend analysis compares financial data across different periods to identify trends, while horizontal analysis looks at changes over time by comparing line-by-line items to a base year.

Step-by-step explanation:

The main difference between trend analysis and horizontal analysis is that trend analysis focuses on analyzing changes over time, while horizontal analysis compares financial data across different periods. Specifically, option 2) is the correct choice as it states that trend analysis compares financial data across different periods, while horizontal analysis focuses on analyzing changes over time. When conducting a trend analysis, analysts typically use line graphs to show patterns in data changes throughout consecutive periods, which can reveal trends. In contrast, horizontal analysis might look at financial statements line by line, comparing each item to a base year to deduce the changes in values over time.