What type of analysis involves evaluating a company's financial statements for trends and patterns over time?

The analysis that focuses on evaluating a company's financial statements for trends and patterns over time is known as horizontal analysis. This method involves comparing historical financial data across multiple periods, allowing analysts to identify growth patterns, fluctuations, and trends in revenues, expenses, and other financial metrics. By examining financial statements over consecutive years, horizontal analysis sheds light on how a company's performance evolves, helping stakeholders make informed decisions about future operations, investments, and potential areas for improvement.

In contrast, vertical analysis interprets each item in a financial statement as a percentage of a base figure within the same period, providing insight into the relative proportions of financial components but not focusing on changes over time. Cross-sectional analysis compares financial data from different companies at a single point in time, allowing for benchmarking among peers rather than tracking a single company’s performance over time. Lastly, ratio analysis involves calculating various financial ratios to assess a company's performance, but it does not specifically highlight trends as effectively as horizontal analysis does.