Part $3.$ INCOME STATEMENT ANALYSIS $($TREND$-$HORIZONTAL$)$

Another useful technique is called horizontal analysis $($or trend analysis$).$ Basically, you compare the same line item of an income statement and compute $\%$ changes across time. Again, there are various approaches. You can choose a base year and show all other years as a $\%$ of that base. Alternatively, you can compute the change from the prior year$-$ and that is what you will do below for just two lines of the income statement.

$--$ Compute $\%$ change in net sales as $($current sales $-$ prior year sales$)/$prior year sales

$--$ Compute $\%$ change in net income as $($current net income $-$ prior year net income$)/$prior year net income