Real-world examples of horizontal analysis of financial statements

Why start with examples of horizontal analysis of financial statements

Horizontal analysis is nothing more than comparing financial statement line items across multiple periods. But the power is in how you use it.

Instead of asking, “Is \(10 million of profit good?” you ask, “Is \)10 million rising, flat, or shrinking compared with last year and the year before?” That shift turns static financial statements into a moving story.

When people look for examples of horizontal analysis of financial statements, they usually want to see two things:

• How to calculate the dollar and percentage changes across years.
• How to interpret what those changes say about growth, risk, and performance.

So we’ll start with concrete scenarios: a growing SaaS company, a struggling retailer, a manufacturer under margin pressure, a highly leveraged firm, and more. Each example of horizontal analysis will show you:

• The line items being compared.
• The year-over-year change in dollars.
• The year-over-year change in percentage.
• The business story behind the trend.

You can apply the same logic to any public company using data from the SEC’s EDGAR database (https://www.sec.gov/edgar) or to your own internal statements.

Example of horizontal analysis on a simple income statement

Start with the cleanest possible case. Imagine a mid-sized software company, Skyline Apps, with this simplified income statement:

Income Statement (USD in millions)

Horizontal analysis compares 2023 against 2022:

• Revenue: \(96m vs. \)80m → + $16m → +20%
• COGS: \(30m vs. \)24m → + $6m → +25%
• Gross profit: \(66m vs. \)56m → + $10m → +17.9%
• Operating expenses: \(44m vs. \)40m → + $4m → +10%
• Net income: \(16m vs. \)12m → + $4m → +33.3%

This is one of the best examples of horizontal analysis of financial statements because the story is clear:

• Revenue is growing at 20%.
• COGS is growing faster than revenue (25%), hinting at rising costs.
• Operating expenses are growing slower than revenue (10%), showing some operating leverage.
• Net income is growing faster than revenue (33.3%), which is exactly what investors want to see.

The math is simple. The insight isn’t. The firm is growing, but it needs to watch unit costs.

Retail case: examples of horizontal analysis when sales rise but profit falls

Now let’s look at a classic warning sign: a retailer with growing sales but shrinking profit.

Retailer Income Statement (USD in millions)

Horizontal analysis:

• Revenue: 540 vs. 500 → + $40m → +8%
• COGS: 380 vs. 325 → + $55m → +16.9%
• Gross profit: 160 vs. 175 → – $15m → –8.6%
• Operating expenses: 140 vs. 130 → + $10m → +7.7%
• Net income: 15 vs. 30 → – $15m → –50%

This is a textbook example of horizontal analysis of financial statements revealing a profit squeeze:

• Revenue is up 8%, but COGS is up nearly 17%, so the retailer is likely discounting heavily or facing higher supplier costs.
• Gross profit is actually down, even with higher sales.
• Net income is cut in half.

You don’t see this story by looking at a single year. You see it by lining up years and running a horizontal analysis.

Manufacturing: examples include margin erosion over three years

Manufacturers are perfect for multi-year horizontal analysis because input costs, labor, and pricing power tend to move in cycles.

Consider a mid-market manufacturer, IronGate Tools, across three years:

Income Statement (USD in millions)

Horizontal analysis, 2022 vs. 2021:

• Revenue: +10%
• COGS: +16.7%
• Gross profit: flat at 120 (0%)
• Operating expenses: +5.7%
• Net income: –14.3%

2023 vs. 2022:

• Revenue: +6.1%
• COGS: +14.3%
• Gross profit: –8.3%
• Operating expenses: +5.4%
• Net income: –20%

Over three years, revenue grows from 300 to 350 (+16.7%), but net income falls from 35 to 24 (–31.4%). That’s a powerful example of horizontal analysis of financial statements revealing structural margin pressure:

• COGS is rising much faster than revenue.
• Operating expenses keep inching up.
• Gross profit and net income are sliding.

Management might respond with price increases, sourcing changes, or automation. Investors see a company losing pricing power or facing higher commodity and wage costs.

Balance sheet example: tracking leverage and liquidity

Horizontal analysis is not just for income statements. It works just as well on balance sheets.

Imagine a company, Harbor Logistics, that has grown aggressively using debt.

Balance Sheet (USD in millions)

Horizontal analysis:

• Cash: 15 vs. 20 → – $5m → –25%
• Accounts receivable: 80 vs. 60 → + $20m → +33.3%
• Inventory: 55 vs. 40 → + $15m → +37.5%
• Total current assets: 150 vs. 120 → + $30m → +25%
• Long-term debt: 210 vs. 150 → + $60m → +40%
• Equity: 140 vs. 130 → + $10m → +7.7%

This example of horizontal analysis shows:

• Current assets are up, but a lot of that is tied up in receivables and inventory rather than cash.
• Debt has jumped 40%, far outpacing equity growth.

An analyst would likely calculate ratios (debt-to-equity, current ratio) and compare them across years. The Federal Reserve’s data on corporate leverage trends (https://www.federalreserve.gov) can provide context when you’re interpreting similar real examples for public companies.

Cash flow statement: examples of horizontal analysis for sustainability

Cash flow is where the truth usually shows up. A company may report growing profit, but if operating cash flow is flat or negative, something’s off.

Take a consumer tech company, Nova Devices:

Statement of Cash Flows (USD in millions)

Horizontal analysis:

• Net income: 52 vs. 40 → + $12m → +30%
• Operating cash flow: 30 vs. 35 → – $5m → –14.3%
• Investing cash flow: –60 vs. –50 → – $10m (more spending) → –20%
• Financing cash flow: 40 vs. 25 → + $15m → +60%
• Net change in cash: flat at 10

This is one of the more subtle examples of horizontal analysis of financial statements:

• Profit is up 30%, but operating cash flow is down.
• The company is funding heavier investment and weak operating cash flow with more financing.

It’s sustainable only if those investments generate future cash. Otherwise, the company is leaning on lenders and investors to plug a cash gap.

Real examples: using public company data for horizontal analysis

You don’t have to invent your own data. If you want real examples of examples of horizontal analysis of financial statements, public company filings are your playground.

A few places to pull raw numbers:

• SEC EDGAR (https://www.sec.gov/edgar): 10-K and 10-Q filings for U.S. public companies.
• Investor relations pages on company sites: often include 5–10 years of financial history.
• Academic and educational sites, such as Harvard Business School resources (https://www.hbs.edu), that walk through financial statement analysis case studies.

Suppose you download three years of income statements for a large retailer and load them into Excel. You can:

• Add columns for year-over-year dollar change.
• Add columns for year-over-year percentage change.
• Highlight lines where costs grow faster than revenue or where certain expenses suddenly spike.

These real examples include everything from pandemic-era revenue shocks to 2024–2025 interest expense spikes as companies refinance debt at higher rates. The method stays the same; the context changes.

Trend spotting: 2024–2025 themes visible in horizontal analysis

If you run horizontal analysis across recent years, some clear macro themes pop out, especially in U.S. and global data:

• Interest expense is rising for leveraged companies as rates increased after 2022. You’ll see interest expense lines jump year-over-year in 2023 and 2024 filings.
• Wage and input cost pressures show up as faster growth in COGS and SG&A than in revenue for many sectors.
• Digital and AI investment often appears as rising R&D and capital expenditures, visible in horizontal analysis of cash flow and income statements.

For context on macro trends, the Bureau of Economic Analysis (https://www.bea.gov) and Federal Reserve Economic Data (FRED) at the St. Louis Fed (https://fred.stlouisfed.org) provide time-series data that mirror what you see at the company level. When you study a company’s horizontal analysis, you can compare its trends with the broader economy.

These real examples of horizontal analysis of financial statements are exactly how equity analysts connect company performance to the macro environment.

Multi-year revenue mix: examples include segment-level horizontal analysis

Horizontal analysis gets even more interesting when you break things down by segment or product line.

Imagine a streaming media company, Streamline Co., with two segments: Subscriptions and Advertising.

Segment Revenue (USD in millions)

Horizontal analysis:

2022 vs. 2021:

• Subscriptions: +60 → +30%
• Advertising: +15 → +30%
• Total revenue: +75 → +30%

2023 vs. 2022:

• Subscriptions: +30 → +11.5%
• Advertising: +30 → +46.2%
• Total revenue: +60 → +18.5%

Over three years, subscriptions grow from 200 to 290 (+45%), while advertising grows from 50 to 95 (+90%). This example of horizontal analysis shows:

• The revenue mix is shifting toward advertising.
• The company is becoming more dependent on ad markets, which may be more cyclical.

Analysts often pair this with vertical analysis (percent of total revenue) to see how the business model is evolving.

Startup-style example: runway and burn analysis using horizontal trends

For startups, the most practical examples of horizontal analysis of financial statements focus on burn rate and runway.

Consider a venture-backed SaaS startup, CloudQuill:

Key Metrics (USD in millions)

Horizontal analysis across quarters:

• Revenue: rising from 5 to 7.5 (+50% over two quarters).
• Operating expenses: rising from 12 to 13.5 (+12.5%).
• Net loss: improving from –7 to –6.
• Cash: falling from 40 to 27.5 (–31.3%).

This is an example of horizontal analysis that investors use to ask:

• Is revenue growing faster than expenses? Yes.
• Is the burn rate (cash outflow per quarter) improving? Somewhat.
• How many quarters of runway remain at the current burn? Roughly 4–5.

The company is moving in the right direction, but the horizontal trend in cash tells investors how urgent the next funding round or path to profitability really is.

Putting it into practice: how to build your own horizontal analysis

After seeing these examples of examples of horizontal analysis of financial statements, the workflow should feel straightforward:

• Pull at least two, preferably three to five, years of financial statements.
• For each line item you care about, add columns for:
  • Current year amount.
  • Prior year amount.
  • Dollar change (current – prior).
  • Percentage change (dollar change ÷ prior year).
• Scan for patterns:
  • Revenue vs. COGS growth.
  • Operating expense growth vs. revenue.
  • Net income trend vs. revenue trend.
  • Debt and equity trends.
  • Operating cash flow vs. net income.

The method is simple enough that you can teach it in an introductory finance class. Many universities, including Harvard and other business schools, use similar real examples in their financial accounting courses (see, for instance, materials linked from https://online.hbs.edu).

What separates average analysis from good analysis is what you do next: connect the numbers to business realities—pricing, wages, interest rates, competitive pressure, and strategy.

FAQ: examples of horizontal analysis of financial statements

What is an example of horizontal analysis on an income statement?
A straightforward example of horizontal analysis on an income statement is comparing this year’s revenue, COGS, and net income with last year’s and calculating the percentage change. For instance, if revenue rises from \(1 million to \)1.2 million (+20%) while net income rises from \(100,000 to \)180,000 (+80%), horizontal analysis tells you profitability is scaling faster than sales.

What are some real examples of horizontal analysis used by investors?
Investors routinely review three to five years of a company’s 10-K filings from the SEC EDGAR database and build spreadsheets of year-over-year changes in revenue, margins, operating expenses, and debt. Real examples include spotting a steady rise in interest expense after 2022 as rates increased, or identifying companies whose SG&A is growing faster than revenue, which may signal cost control problems.

How is horizontal analysis different from vertical analysis?
Horizontal analysis looks at changes over time—this year vs. last year, or 2024 vs. 2022. Vertical analysis looks at proportions within a single period—such as COGS as a percentage of revenue in 2024. Most professionals use both: vertical analysis to see structure, and horizontal analysis to see direction and speed.

Can horizontal analysis be applied to cash flow statements?
Yes. A powerful example of horizontal analysis of financial statements is comparing operating cash flow year-over-year and seeing whether it keeps pace with net income. If net income is up 30% but operating cash flow is flat or negative over several years, that’s a red flag about earnings quality.

What are limitations of horizontal analysis?
Horizontal analysis depends on the quality and consistency of the underlying data. Accounting changes, one-time items, or acquisitions can distort year-over-year comparisons. It also doesn’t explain why numbers moved—only that they did. You still need management commentary, industry data, and sometimes macroeconomic sources like the Federal Reserve or BEA to interpret the story behind the trends.