The horizontal analysis is a form of calculation that is used to look into the amounts of the financial statements in the past years. From this, the amount of cash that was reported is presented as a percentage of the amount. Similar analysis will be done for each item that is shown in the balance sheet. Each variable in the income statement is developed using this theory. The horizontal analysis is also referred as the trend analysis. In this case, A.G Barr plc. is a Scottish soft drink manufacturer. The company has a number of noted products. The vertical and horizontal analysis of the company will be used from the data that it had presented to the stakeholders. Being a public company that is listed in London Stock Exchange, it is a part of the FTSE 250 Index. The company has entered into collaboration with Rockstar Inc. The company has tried to gain leverage in the markets and create a niche consumer base. They have managed to sustain in the markets by focusing on people development, responsibility and the ethical mandate. This has enabled the company to sustain in the current times. This needs to be factored.
Benefit and Limitation of Horizontal Analysis
For a sound decision to be made about the company, it is mandatory to factor historic financial information. There are certain “predictive nature decisions” that are dependent on the company. A.G Barr plc. is a company that has garnered the stakeholder trust. However, the record of past events cannot predict future prosperity. These are little bearing on the probable events of the company (Wild et al., 2004). The technological obsolescence and changing consumer preference are the intangibles that are overlooked in the financial statement analysis. Financial statements are used for analysis of the quantitative information. Qualitative information is overlooked in this schema. Owing to the purpose of the financial analysis, efforts need to be taken to factor in the qualitative factors for the development of the horizontal and vertical analysis. The veracity and accuracy of the horizontal and vertical analysis are dependent on the company that the accountant would choose to compare. The industry financial data average and view of the stock is based on subjective reasoning. According to this, careful scrutiny needs to be done while conducting trend analysis. The overt limitation of these tools is the lack of standardization. Earnings per Share ratio are usually adhered according to the International Accounting Standard Board and International Accounting Standard IAS -33 is used to standardize the results (Healy and Palepu, 2012). However, this is not possible.
To summarize, the horizontal and vertical analysis is based on subjective reasoning. . In the case of A.G Barr plc., it is a successful company that has maintained credibility over the years. However, certain assumptions will be made while making determination about the company. This can be limitation for assessing the company accurately. The issue of resources such as time and budgetary concerns cannot be refuted. At these times, the use of secondary information or analysis is done. This may not be always accurate. Ratio analysis is used to analyse the income statement using relative scales and margins. This is detailed in the following.