Horizontal Analysis: Trend Analysis

Trend analysis is a form of horizontal analysis in which percentages are computed for multiple years, using a base year as 100% and expressing amounts for the following periods as a percentage of the base year.

Example

Prepare a trend analysis using the following information related to net sales for Lucky 7, Inc. Use 2012 as the base year.

YearAmount
2016$520,000
2015$485,000
2014$475,000
2013$440,000
2012$450,000

 

Year20162015201420132012
Net sales$520,000$485,000$475,000$440,000$450,000
Trend percentages115.56%
$520,000/$450,000
107.78%
$485,000/$450,000
105.56%
$475,000/$450,000
97.78%
$440,000/$450,000
100.00%
$450,000/$450,000
Base year

Calculation of trend percentage for 2013:

Calculation of trend percentage for 2014:

Calculation of trend percentage for 2015:

Calculation of trend percentage for 2016:

Trend analysis compares line items over a number of years, using a base year for a reference point. A graph may provide management with a good idea of the trend for each line item. You can see that sales increase in 2014, but at a slower rate than in either 2013 or 2015. You could compare this to cost of goods sold or any other line item.