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.
Prepare a trend analysis using the following information related to net sales for Lucky 7, Inc. Use 2012 as the base year.
Year | Amount |
2016 | $520,000 |
2015 | $485,000 |
2014 | $475,000 |
2013 | $440,000 |
2012 | $450,000 |
Year | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|
Net sales | $520,000 | $485,000 | $475,000 | $440,000 | $450,000 |
Trend percentages | 115.56% $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.