The importance of accounting analysis of certain monetary transactions has been said a lot. However, in order to reveal how much a particular balance sheet item makes a profit, not only vertical, but also horizontal analysis is needed. So you can fully and schematically discern the weaknesses of your enterprise and take appropriate measures.
What is horizontal balance analysis? This is a accounting calculation that allows you to understand how stable the performance of the enterprise in a given period of time, and most often in dynamics. The calculation is based on a certain period of time - most often from three months to a year, as well as all information on the main articles of the enterprise. Horizontal analysis of the balance sheet allows you to understand what is the source of profit and what is not.
In order to make this type of analysis possible, you must first collect all the necessary information. Suppose you decide to conduct a horizontal balance analysis. An example is this: consider the work of one enterprise in 1999, in 2000 and 1998. To begin with, we collect information on income for each of the articles in these years. Articles should be as follows: two main - asset and stocks. The asset, in turn, is divided into non-current assets, current assets and fixed assets. Inventories should be divided into short-term financial investments, ownership - receivables, as a rule, and in the column “Other current assets”. After that, you need to make a table in which each article will be in the left column. At the end of the table, draw another column - balance. The next column is information for 1998. In each column write down the data for each of the articles in terms of money and percentage. That is, you must not only find all the numbers, but also translate them into percentages. For 100% we take the highest rate for the year. After you do this, proceed to the information for 1999, then 2000. Next, more: we summarize the resultant in each column in the balance sheet. Now the situation can be seen quite clearly: in 98 the enterprise had a crisis. Items such as other assets incurred the largest losses, and accounts receivable amounted to as much as one hundred percent. In 1999, the organization managed to rectify the situation by reducing other assets and changing its policy. An increase in the balance in 2000 was noticed. Do you understand how this works? Due to the fact that you make a horizontal analysis of the balance sheet, you can clearly see what exactly needs to be changed at the enterprise in order to increase profits.
This method of diagnosis is used by all successful firms. Together with a vertical analysis, this procedure has no equal - all weak and strong places are visible, clearly. A horizontal balance analysis serves as a lifesaver for those who have previously had difficulty recognizing their mistakes in doing business.
By the way, for the sake of clarity, you can draw up a balance sheet or diagrams - this is customary to demonstrate at meetings of company management.
Some people have difficulty reading the balance sheet that has already been drawn up, because it is not always clear what exactly the accountant means under this or that article. Briefly we will go over the basic concepts due to which a horizontal balance analysis takes place. An asset is compiled by general indicators for intangible assets - (land, premises owned by the enterprise), fixed assets - the cost of equipment and its maintenance and repair, unfinished investments - the investment of the enterprise in repair or construction to improve production. Inventories - raw materials, materials, products - all that is in stock but not yet put into circulation, accounts receivable - settlement with other enterprises. Cash - all the finances that the company now has. Here, in principle, and all the difficulties. Be competent in doing business and do not be lazy to make a horizontal balance analysis and consider all your mistakes.