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 to be assigned for Year 2 in a trend analysis, assuming Year 1 as the base year, we use the following formula: Trend Percentage=(Current Year ValueBase Year Value)×100\text{Trend Percentage} = \left( \frac{\text{Current Year Value}}{\text{Base Year Value}} \right) \times 100
Given data:
- Year 1 (Base Year) = $780
- Year 2 = $819
Trend Percentage for Year 2=(819780)×100\text{Trend Percentage for Year 2} = \left( \frac{819}{780} \right) \times 100 =1.05×100= 1.05 \times 100 =105%= 105\%
Thus, the correct answer is (c) 105%.
Explanation:
A trend analysis compares financial data over time, with a base year set to 100%. This helps in analyzing growth, stability, or decline. The percentage tells us how much the value has changed relative to the base year.
- Understanding Trend Analysis: This method is commonly used in financial and business analysis to evaluate changes in revenue, expenses, profits, and other key performance indicators over time.
- Base Year Concept: The base year is assigned a value of 100%. Each subsequent year’s value is expressed as a percentage of the base year.
- Interpreting 105%: The 105% result indicates that the value in Year 2 increased by 5% compared to Year 1. This means a positive growth trend.
- Why It Matters: Businesses and investors use trend analysis to assess performance over time. A consistent upward trend suggests growth, whereas fluctuations might indicate instability.
By following this method, we ensure accurate financial comparisons, helping businesses make informed decisions based on past performance.