is often used by investors or creditors to evaluate risk and corporate finance profiles 
criticism of horizontal analysisdepending on which accounting period an analyst starts from and how many accounting periods are chosen the current period can be made to appear unusually good or bad for example the current period s profits may appear excellent when only compared with those of the previous quarter but are actually quite poor if compared to the results for the same quarter in the preceding year although a change in accounting policy or the occurrence of a one time event can impact horizontal analysis these situations should also be disclosed in the footnotes to the financial statements in keeping with the principle of consistency a common problem with horizontal analysis is that the aggregation of information in the financial statements may have changed over time so that revenues expenses assets or liabilities may shift between different accounts and therefore appear to cause variances when comparing account balances from one period to the next indeed sometimes companies change the way they break down their business segments to make the horizontal analysis of growth and profitability trends more difficult to detect accurate analysis can be affected by one off events and accounting charges example of horizontal analysishorizontal analysis typically shows the changes from the base period in dollar and percentage for example a statement that says revenues have increased by 10 this past quarter is based on horizontal analysis the percentage change is calculated by first dividing the dollar change between the comparison year and the base year by the line item value in the base year then multiplying the quotient by 100 for example assume an investor wishes to invest in company xyz the investor may wish to determine how the company grew over the past year assume that in company xyz s base year it reported net income of 10 million and retained earnings of 50 million in the current year company xyz reported a net income of 20 million and retained earnings of 52 million consequently it has an increase of 10 million in its net income and 2 million in its retained earnings year over year therefore company abc s net income grew by 100 20 million 10 million 10 million 100 year over year while its retained earnings only grew by 4 52 million 50 million 50 million 100 