Trend analysis is a common task in financial accounting. Accountants compare two time periods by using financial information. The difference typically shows a percentage increase or decrease in the information. Accountants use the data to determine if the company is growing or contracting. In many cases, accounting software provides different trend-analysis tools for accountants to use. One such tool is the percentage change between one or multiple years of accounting information.
Gather two sets of financial statements. One is from the current year, such as 2010; the other is from the second previous year -- 2008, in this example.
Subtract 2008 sales from current 2010 sales. Complete this step for each item on the income statement, using the figures from each line for the computations.
Divide the difference in sales by 2008 sales. Complete this action for each line on the income statement, using the figures from each line for the computation.
Note the percentage change as a positive or negative. The former indicates growth; the latter indicates contraction.
When conducting trend analysis, a company may decide to select a base year for the process. In this case, the data for the base year become the information to which all subsequent years must be compared to determine the financial trend.
- "Fundamental Financial Accounting Concepts"; Thomas P. Edmonds, et al.; 2011