The horizontal analysis formula compares historical financial information across a series of reporting periods by using the ratios obtained from this financial information. The purpose of the formula is to determine if the numbers are uncommonly high or low compared to the numbers found during the bracketing period.
Numbers that are unusually high or low trigger a full investigation to determine the cause of the difference. A horizontal analysis uses a simple grouping of information sorted by periods. The numbers in each period are shown as percentages depicting the amount earned in the baseline year. The baseline amount in each period is always listed as 100 percent.