Horizontal balance analysis

A lot has been said about the importance of accounting analysis of various monetary operations. However, in order to determine whether a balance sheet article is profitable, not only vertical, but also horizontal analysis is needed. So you will be able to fully and schematically see the weak points of your company and take appropriate measures.

What is a horizontal balance analysis? This is an accounting calculation that allows you to understand how firm the company's performance is at any given time, and most often in dynamics. The basis of the calculations is taken for 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 first need to collect all the necessary information. Let's say you decided to do a horizontal balance analysis. An example is as follows: consider the work of one enterprise in 1999, in 2000 and 1998. First, we collect information on the income for each of the articles in these years. The articles should be as follows: the two main ones are the asset and stocks. The asset is in turn divided into non-current assets, current assets and fixed assets. The reserves should be divided into short-term financial investments, zodolzhnost - debtor, as a rule, and the column "Other current assets." After that, you need to create 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 figures, but also translate into percentages. For 100% we take the highest figure for the year. After you do this, go to the information for 1999, then - 2000. Next - more: we summarize the result obtained in each column in the balance. Now the situation can be seen quite clearly: in 98 the enterprise had a crisis. Strongest losses were brought by such items as other assets, and receivables amounted to as much as one hundred percent. In 1999, the organization managed to improve the situation by reducing other assets and changing the policy of action. An increase in the balance in 2000 was noted. Do you understand how this works? Due to the fact that you make a horizontal balance analysis, 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 the vertical analysis of this procedure there are no equal - all weak and strong places are visible, as in the palm of your hand. The horizontal balance analysis serves as a wand-pin for those who before it was difficult to recognize their mistakes in the conduct of business.

By the way, for the best visibility it is possible to draw up a balance sheet or diagram - it is customary to demonstrate at the meetings of the company's management.

Some people find it difficult to read the balance already made, because it is not always clear what exactly the accountant under this or that article means. We will briefly go over the basic concepts, thanks to which a horizontal balance analysis takes place. The assets constitute the total indicators for intangible assets - (land, premises that are part of the ownership of the enterprise), fixed assets - the cost of equipment and its maintenance and repair, unfinished investments - investing money in repair or construction to improve production. Stocks - raw materials, materials, products - everything that is in the warehouse, but has not yet been introduced into the turnover, accounts receivable - settlement with other enterprises. Cash - all the finance that is now available from the company. Here, in principle, and all the difficulties. Be literate in doing business and do not be lazy to make a horizontal balance analysis and consider all your mistakes.