Which methods are used for conducting horizontal analysis?

Horizontal analysis is a financial analysis technique that evaluates trends over a specific period by comparing financial data across multiple periods. This method allows businesses to assess growth patterns, identify cost efficiencies, and recognize potential areas of concern.

The correct choice highlights the use of linear trend analysis and base year analysis as methods for conducting horizontal analysis. Linear trend analysis involves looking at data points over time to evaluate a trend direction—whether it is increasing, decreasing, or stable. For instance, if a company’s revenue has grown consistently over several years, the analysis can help predict future performance based on historical data trends.

Base year analysis, on the other hand, sets a specific year as a base and evaluates subsequent periods against it. This approach allows stakeholders to see how financial metrics have changed relative to that base year, making it easier to understand percentage changes and overall growth.

In contrast, other methods mentioned do not primarily pertain to horizontal analysis. For example, financial ratios like the current ratio, cash flow, debt-to-equity, and expense ratio are typically used for vertical analysis or financial health assessments rather than trend evaluations over time.