Trend percentages are a valuable tool in financial analysis, particularly for assessing the growth or decline of specific accounts over time. This method is akin to horizontal analysis, allowing analysts to observe trends in financial data across multiple years. To compute trend percentages, one typically selects a base year, which is usually the oldest year in the dataset. The formula for calculating the trend percentage for any given year is:
Trend Percentage = \(\frac{\text{Year's Amount}}{\text{Base Year's Amount}} \times 100\)
In this context, the base year is assigned a trend percentage of 100%. For example, if the base year shows an income from operations of $842,000, the calculation for that year would be:
Trend Percentage (Base Year) = \(\frac{842,000}{842,000} \times 100 = 100\%\)
Moving to subsequent years, the trend percentages can be calculated as follows:
For 2015, if the income from operations is $1,129,000, the calculation would be:
Trend Percentage (2015) = \(\frac{1,129,000}{842,000} \times 100 \approx 134\%\)
This indicates that the income from operations in 2015 was 134% of the base year. Continuing this process for 2016, with an income of $1,406,000, the trend percentage would be:
Trend Percentage (2016) = \(\frac{1,406,000}{842,000} \times 100 \approx 167\%\)
In 2017, if the income is $862,000, the calculation yields:
Trend Percentage (2017) = \(\frac{862,000}{842,000} \times 100 \approx 102\%\)
Finally, for 2018, with an income of $676,000, the trend percentage would be:
Trend Percentage (2018) = \(\frac{676,000}{842,000} \times 100 \approx 80\%\)
These calculations reveal a pattern: income from operations increased from 2014 to 2016, peaked in 2016, and then began to decline in subsequent years. This analysis highlights the importance of trend percentages in understanding financial performance over time, allowing stakeholders to make informed decisions based on historical data.
15 Terms