What is one advantage of conducting horizontal analysis?

Conducting horizontal analysis primarily focuses on evaluating financial statements over multiple periods, making it particularly effective in identifying trends and growth patterns in a company's financial performance. By analyzing changes in financial data over time, stakeholders can assess how specific line items such as revenues, expenses, and profits have evolved, allowing them to make informed predictions about future performance and strategic decisions.

This type of analysis often involves calculating percentage changes between periods, which provides a clearer view of not only performance trends but also the pace of growth or decline in certain areas. This insight is invaluable for management in planning and for investors in evaluating the company’s trajectory, differentiating it as a crucial tool in financial analysis.

The other options do not capture the essence of horizontal analysis. Tax reporting involves specific regulations and does not benefit from this comparison method. Immediate cash flow concerns are addressed through different analytical tools such as cash flow statements instead of horizontal analysis, which is more history-focused. Lastly, while horizontal analysis is useful, it does not inherently reduce the number of financial statements needed, as it requires data from multiple periods for a comprehensive assessment.