Preparing a Horizontal Analysis of a Balance Sheet

Frequently, balance sheets are prepared with the data from the current year or operating period side by side with the figures from one or more previous periods. This type of presentation is known as a comparative balance sheet because the data from different periods can be readily compared.

This information provides managers, creditors, and investors with important data concerning the progress of the company over a period of time, financial trends that may be developing, and the likelihood of future success. Comparative balance sheets use horizontal analysis to measure the increases and decreases that have taken place in the financial data between two operating periods. In horizontal analysis, each item of the current period is compared in dollars and percent with the corresponding item from a previous period.