1. Horizontal Analysis Example Exercise 8
Another ratio that is useful when interpreting the financial performance of a company is horizontal analysis. In this comparison, a current year financial statement component, such as net income, is compared with a prior period that will shed light on the company’s operating performance.

2. 4
Example Exercise 8
In this exercise, we will analyze the data provided about the McCorkle Company, using horizontal analysis.

3. 4
Follow My Example 8
$210, ,000 = 35,000
To correctly execute this ratio, we will use Fees Earned from 2011 and Step 1 requires that the difference between the two years being compared is determined. 210,000 minus 175,000 equals 35,000.

4. Base Year 4 Follow My Example 8
We now know that the McCorkle eared 35,000 dollars more in fees in 2012 than in In this type of analysis, using the earlier year as the base year highlights the increase or decrease from the base year going forward. So, 35,000 divided by 175,000 results in a 20 percent increase in fees earned from 2011 to 2012. 4

5. Follow My Example 8
The remaining percentages are determined using the same steps. For McCorkle Company, in addition to their fees increasing by 20 percent, their operating expenses also increased by 15 percent. Lastly, their net income increased from 2011 to 2012 by 50 percent.

6. Follow My Example 8
The Follow My Example from the text.

7. 4 Example Exercise 8 For Practice: PE 8A, PE 8B
Refer to Practice Exercise PE 2-8A and PE 2-8B for more practice on horizontal analysis.
For Practice: PE 8A, PE 8B 7