If Year 1 equals $750, Year 2 equals $840, and Year 3 equals $900, the percentage to be assigned for Year 3 in a trend analysis, assuming that Year 1 is the base year, is
a. 120%.
b. 112%.
c. 83%.
d. 107%.
The correct answer and explanation is :
To determine the percentage to be assigned for Year 3 in a trend analysis, assuming Year 1 as the base year, we use the following formula:
[
\text{Trend Percentage} = \left(\frac{\text{Year Value}}{\text{Base Year Value}}\right) \times 100
]
Given:
- Year 1 (Base Year) = $750
- Year 3 = $900
Applying the formula:
[
\text{Trend Percentage} = \left(\frac{900}{750}\right) \times 100
]
[
= 1.2 \times 100
]
[
= 120\%
]
Thus, the correct answer is:
a. 120%
Explanation:
Trend analysis is a financial tool used to compare financial data over time by expressing each year’s value as a percentage of a base year. The base year is always set at 100%, and all other years are measured relative to it.
In this case, Year 1 is the base year, meaning it is assigned 100%. For Year 3, we compare its value to the base year using the formula mentioned. The result, 120%, indicates that the value in Year 3 has increased by 20% from Year 1.
This means the company’s financial value (or revenue, cost, or other metric being analyzed) has grown by one-fifth (or 20%) from Year 1 to Year 3. Trend analysis helps in assessing growth patterns and making future projections.
Thus, the correct answer remains 120% (Option A).