Horizontal analysis

Horizontal analysis preserves two pieces of information: how many currency units changed and how large that change is relative to a stated base. Neither piece should be substituted for the other.

Three outputs, three labels

Suppose net sales rise from $300,000 to $345,000 and then to $380,000.

Year 2 dollar change = $345,000 − $300,000 = $45,000
Year 2 percentage change = $45,000 ÷ $300,000 = 15.00%

Year 3 dollar change = $380,000 − $345,000 = $35,000
Year 3 percentage change = $35,000 ÷ $345,000 ≈ 10.14%

Year 3 reports higher sales than Year 2, yet the dollar increase and percentage growth are lower from Year 2 to Year 3 than from Year 1 to Year 2. Reporting only one output can hide that distinction.

A fixed-base index answers another question. If Year 1 is 100, the two later indexes are:

Year 2 index = $345,000 ÷ $300,000 × 100 = 115.00
Year 3 index = $380,000 ÷ $300,000 × 100 = 126.67

Year 2 is therefore 15.00% above the Year 1 base, and Year 3 is 26.67% above it. An index of 126.67 does not mean sales grew 126.67%.

A zero base is a stop condition

If the comparison-period amount is zero, ordinary percentage change divides by zero and is undefined. Software should omit or specially classify the result, not display infinity, 100%, or zero. Retain the dollar change and describe the transition in words. A negative base can produce a quotient but may be sign-confusing; keep both signed amounts visible and explain the convention.

From pattern to question

Aster's sales grow while receivables and inventory grow faster. Horizontal analysis supports that observation. It does not prove looser credit, weak collections, overbuying, inflation, or slowing demand. Those are competing hypotheses. Turnover, aging, terms, price-volume data, write-downs, and subsequent cash evidence help test them.

Boundary

Three observations can reveal direction and acceleration, but they do not establish seasonality, statistical trend, forecast accuracy, or causation. Horizontal analysis also does not repair inconsistent classifications or entity boundaries. The source packet and any restatement bridge remain part of the calculation record.