What is the primary focus of horizontal analysis?

The primary focus of horizontal analysis is to compare financial data over a series of periods, typically evaluating reports spanning two or more consecutive years. This method allows for the assessment of trends and patterns within the financial statements, enabling analysts to identify growth rates, changes in revenue, expenses, and other key performance indicators over time. By looking at the same financial statement line items across different periods, stakeholders can discern whether a company is improving or declining financially, making it a valuable tool for decision-making and forecasting.

In contrast to this primary focus, analyzing trends within a single year's financial statements would not capture the necessary longitudinal data to perform a horizontal analysis. Assessing asset liquidity involves evaluating a company's capability to meet its short-term obligations, which is more related to vertical analysis and ratio analysis than horizontal analysis. Evaluating gross profit calculations pertains to the profitability aspect of financial statements and does not align directly with the trend-focused nature of horizontal analysis. Thus, the option highlighting the comparison of financial reports over two years encapsulates the essence of horizontal analysis accurately.