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Horizontal analysis is a financial reporting method primarily utilized to evaluate the percentage change in individual financial statement items over a series of periods, typically from one year to the next. This technique allows analysts to identify trends, growth patterns, and fluctuations in a company’s financial performance over time. By assessing the changes in dollar amounts and computing the percentage change, stakeholders gain insights into how certain line items, such as revenue or expenses, are evolving, which can inform strategic decision-making.

While horizontal analysis can be applied to various components of financial statements, its primary focus is on the year-to-year comparison of specific items. This contrasts with elements like comparative studies of balance sheets or income statements which may not specifically delve into the percentage changes over time but rather provide a snapshot. Hence, the stepwise analysis of trends through horizontal analysis is instrumental for investors, management, and auditors alike to understand the operational performance and financial health of an organization across different periods.