Question

Horizontal analysis is also known as _________ analysis. (static/dynamic)

Hint:

Horizontal analysis involves comparing financial data from different periods to analyze growth trends, while static analysis focuses on a single period's financial position.

Answer 1

Step 1: Understanding Horizontal Analysis.
Horizontal analysis is a method of financial statement analysis that evaluates financial data over a period of time. The focus is on identifying trends and growth patterns by comparing historical financial information. In horizontal analysis, data from multiple periods is compared to understand the changes, growth, or decline in the company’s performance over time.
Step 2: Characteristics of Dynamic Analysis.
Since horizontal analysis focuses on the changes or dynamics in the company's financial performance over several periods, it is referred to as dynamic analysis. The term "dynamic" highlights the fact that this type of analysis is concerned with the fluctuations in financial data over time.
Step 3: Understanding Static Analysis.
Static analysis refers to the study of financial statements at a single point in time. It does not involve comparisons over multiple periods. This method is typically used for understanding a company’s financial position at a specific date (e.g., balance sheet analysis). Step 4: Conclusion.
Since horizontal analysis is based on comparing financial data over time to understand changes, it is also known as dynamic analysis. Therefore, the correct answer is dynamic.