If I want to see the trend of a company's revenues, net income, and number of clients during the years 2006 through 2012, trend analysis will present 2006 as the base year and the 2006 amounts will be restated to be 100. The amounts for the years 2007 through 2012 will be presented as the percentages of the 2006 amounts. In other words, each year's amounts will be divided by the 2006 amounts and the resulting percentage will be presented. For example, revenues for the years 2006 through 2012 might have been $31,691,000; $40,930,000; $50,704,00; $63,891,000; $79,341,000; $101,154,000; $120,200,000. These revenue amounts will be restated to be 100, 129, 160, 202, 250, 319, and 379.
Let's assume that the net income amounts divided by the 2006 amount ended up as 100, 147, 206, 253, 343, 467, and 423. The number of clients when divided by the base year amount are 100, 122, 149, 184, 229, 277, and 317.
From this trend analysis we can see that revenues in 2012 were 379% of the 2006 revenues, net income in 2012 was 467% of the 2006 net income, and the number of clients in 2012 was 317% of the number in 2006. Using the restated amounts from trend analysis makes it much easier to see how effective and efficient the company has been during the recent years.
Trend analysis can also include the monitoring of a company's financial ratios over a period of many years.
Studies show that exam questions are a great way to learn and retain important information. Gain access to our 1,700 accounting exam questions (and answers) when you upgrade to PRO.