Jet Task 1 - Horizontal & Vertical Analysis

In: Business and Management

Submitted By tburns1997
Words 3872
Pages 16
Absolute number for dollars does not carry the same weight and importance to each company, so other types analysis needs to be used. In general analyzing financial statements allows the management to identify issues, make changes, and to take control to meet the goals set for the company. There are quite a few difference analyses that could be used.

One such analysis is Horizontal analysis. In Horizontal analysis the changes and difference are an indication for further analysis. Horizontal analysis on its own will help identify potential issues, but even better would be to compare this company’s Horizontal analysis with similar companies in the same industry. Using dollars for the analysis can be deceiving, even within the same industry. A solution to the skewed numbers is to use percentages when comparing multiple companies allows the comparison to be reviewed on an even ground. An example would be company A and companies B both have an increase in earnings of $100,000. Company A has total earnings of $1 million, a ten percent increase, and company B $10 million, only a one percent increase. The smaller company will be happier with the increase then the larger. Within the industry, trends can be identified and corrected before they are out of control.

A downfall to Horizontal analysis is that the numbers change from day to day. It is helpful to conduct this analysis as soon as the financials are available to prevent further loses. Another downfall to Horizontal analysis is the data can be manipulated, to an extent. The management can portray the scope of data to reflect what the management would like to reviewer to interpret from the analysis presented. An example would be the year chosen for the base year. Carefully choosing the base year could reveal increases, decreases, or stabilization.

The upside to Horizontal analysis is the…...

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