If Year 1 equals $780, Year 2 equals $819, and Year 3 equals $896, the percentage to be assigned for Year 2 in a trend analysis, assuming that Year 1 is the base year, is
a. 95%.
b. 115%.
c. 105%.
d. 109%.
The correct answer and explanation is :
To determine the percentage assigned to Year 2 in a trend analysis, assuming that Year 1 is the base year, we use the following formula:
[
\text{Percentage for Year 2} = \left(\frac{\text{Value in Year 2}}{\text{Value in Year 1}}\right) \times 100
]
Given:
- Year 1 (Base Year) = 780
- Year 2 = 819
Applying the formula:
[
\left(\frac{819}{780}\right) \times 100
]
[
= (1.05) \times 100
]
[
= 105\%
]
Correct Answer: c. 105%
Explanation:
Trend analysis is a financial and business tool used to compare data over time relative to a base year. The base year is always assigned a value of 100%, and subsequent years are compared against this base.
- Understanding the Calculation:
- The base year (Year 1) is always 100%.
- To find the trend percentage for Year 2, we divide the Year 2 value by the base year value and multiply by 100.
- This calculation shows how much the value has increased or decreased relative to the base year.
- Interpretation:
- The result, 105%, means that Year 2 has increased by 5% compared to Year 1.
- If the percentage was below 100%, it would indicate a decrease.
- Since the percentage is above 100%, it confirms an upward trend.
- Importance in Analysis:
- Businesses use trend analysis to track performance, revenue growth, or expenses.
- A 5% increase suggests steady growth, which is generally a positive indicator.
Thus, the correct answer is 105% (option c).