Certified Financial Management Specialist Practice Exam

What is horizontal analysis focused on?

1. Current financial position

2. Comparison of financial data over time

3. Sales against budget

4. Operational efficiency

The correct answer is: Comparison of financial data over time

Horizontal analysis is focused on the comparison of financial data over time, which allows analysts and stakeholders to assess trends in financial performance. This analysis involves looking at historical financial statements and evaluating changes in specific line items across multiple periods, such as revenue, expenses, and profits. By examining these trends, businesses and their stakeholders can gain insights into growth patterns, economic conditions, and overall financial health. The essence of horizontal analysis lies in its ability to highlight how particular metrics evolve over time, thus helping to identify patterns that may indicate improving or deteriorating performance. This is crucial in making strategic decisions and forecasts. In contrast, other options may focus on static viewpoints, such as assessing current financial positions or operational efficiencies, without placing emphasis on temporal changes in data.