Financial Statement Analysis (Trend Analysis), Cost Accounting Video Lecture | Cost Accounting - B Com

this is part three in our financial
statement analysis series where we'll be
discussing trend analysis which is
another form of a horizontal analysis
which we talked about in part two so
again a horizontal analysis is when we
when we analyze a company from one year
to another year so a trend analysis
again is just another form of a
horizontal analysis where actually can
tell what the direction the business is
taking so for example what are the
revenues or the income doing is it
increasing decreasing and by what rate
so the base year here is always going to
be a hundred percent because we're
basing everything on the base year so
what happened from the base year to the
current year or the year before etc and
the trend percentage is calculated by
taking the analysis year dollar amount
so whatever the revenue is for this year
for example and divide that by the
revenue for the base year that will give
us our trend percentage for example our
base year revenue would of course be a
hundred percent and if our revenue
increased by two percent then our trend
percentage would be a hundred and two
percent meaning or telling us that our
revenues are a hundred and two percent
this year of our base year so let's take
a look at an example of a trend analysis
so here we have thousand oke realities
net revenue and net income for the
following five year period and we're
going to use 2004 as our base year so
I'm we ultimately want to decide which
fruit faster
net revenue or net income during 2008
which we're calling our current year
so recall what we just stated about the
formula our base year which is 2004 that
will always be a hundred percent so if
our revenue is a thousand forty three a
thousand forty three divided by a
thousand and forty three is one or one
hundred percent but now we want to see
how it grew in two thousand five so we
would take net revenue of one thousand
and nine and divide that by the base
year revenue amount of 1043 when we do
that we find that revenues in 2005 are
ninety seven percent of what they were
in 2004 telling us that our revenues
from 2004 to 2005 fail by three percent
net income our base year net income was
eighty five and in 2005 our net income
was seventy one to find the trend
percentage we would take 71 the net
income in the analysis year and if I
divide that by the net income in our
base year eighty five and we find that
net income in 2005 is 84 percent of what
it was in 2004 telling us that our net
income fell by 16 percent then we
continue on with our next three years so
push press pause on your player right
now and see if you can complete 2006
2007 and 2008 remember you're still
using 2004 as your base year okay so now
we're back and let's see if we get the
same answers for our next three years so
in 2006
your trend percentage for revenue and
income revenues should be one hundred
and six percent and knit income should
have been 98 percent so just to
reiterate here this tells us that in
2006 our net revenue was a hundred and
six percent of what it was in 2000
for meaning our net revenue increased 6%
or has increased 6% since it was since
2004 in 2007 your net revenue trend
percent was 114 percent net income would
have been 134 percent in 2008 net
revenue trend percent would be 126
percent net income would be a hundred
and forty-four percent so the ultimate
question was which grew faster during
the current period net revenue or net
income and we can see this because we've
done the percentages if we if we've just
got the numbers so if you look at the
chart right above it if we just have the
numbers we really can't answer this
question we have to have the percent the
percentage growth and the trend analysis
allows us to do that this form of a
horizontal analysis so we can see that
our net income has grown at a faster
rate than our net revenue so what that's
telling us is that our revenues are
growing at a faster rate than our
expenses