What is horizontal analysis used for?

Horizontal analysis is a technique used to evaluate financial statement data over a period of time. It focuses on determining the growth trends of specific line items by comparing them to their previous periods, which allows for the identification of increases or decreases in those items. This comparison typically involves calculating the percentage changes from one period to the next, providing valuable insights into a company's performance and financial health over time.

For instance, if a company's revenue for one year is significantly higher than the previous year, horizontal analysis helps to quantify that growth and allows stakeholders to assess whether such changes are consistent and sustainable. This form of analysis is particularly useful for investors and management as it highlights patterns and trends that can inform future decision-making.

The other options, while relevant to various analytical contexts, do not align with the specific primary purpose of horizontal analysis, which is tracking changes over time within the same company rather than comparing against budgets, industries, or cash flow patterns.