Horizontal analysis, also known as trend analysis, is a financial analysis technique used to evaluate and compare financial data and performance over multiple accounting periods. It involves the examination of financial statements, such as the income statement, balance sheet, and statement of cash flows, to identify and understand trends, changes, and variations in a company's financial performance and position over time.

Here's how horizontal analysis works:

Select the Accounting Periods: Choose the accounting periods you want to analyze. Typically, you'll compare financial data for two or more consecutive years to observe trends and changes.

Obtain Financial Statements: Gather the financial statements for the selected periods. This includes the income statement (profit and loss statement), balance sheet, and statement of cash flows.

Compare Line Items: Compare corresponding line items or accounts in the financial statements for each period. This involves calculating the absolute change and percentage change between the periods.

Analyze and Interpret: Examine the changes and trends to draw conclusions about the company's financial performance and financial position. Identify areas of improvement, potential concerns, and patterns in revenue, expenses, assets, liabilities, and cash flow.