Final answer:
Option (b), Horizontal analysis compares each financial statement item as a percentage change from the figure of the earliest year. This technique is common in financial reporting to track changes over time.
Step-by-step explanation:
In horizontal analysis, each financial statement item is expressed as a percentage of the same item in a base year, which allows for the analysis of trends over time. The correct answer to the student's question is that in horizontal analysis, each item is expressed as a percentage of the b. earliest year figure.
This comparative method is often used in financial reporting to identify significant trends or changes within a company. An example of this analysis could be the year-over-year growth rate in sales revenue, where sales in each subsequent year are compared as a percentage change to the sales figure in the initial or base year.