3.9: Analyzing and using the financial results—trend percentages

Last updated
Save as PDF

Page ID: 48932

$ \newcommand{\vecs}[1]{\overset { \scriptstyle \rightharpoonup} {\mathbf{#1}} } $ $ \newcommand{\vecd}[1]{\overset{-\!-\!\rightharpoonup}{\vphantom{a}\smash {#1}}} $$\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$ $\newcommand{\id}{\mathrm{id}}$ $ \newcommand{\Span}{\mathrm{span}}$ $ \newcommand{\kernel}{\mathrm{null}\,}$ $ \newcommand{\range}{\mathrm{range}\,}$ $ \newcommand{\RealPart}{\mathrm{Re}}$ $ \newcommand{\ImaginaryPart}{\mathrm{Im}}$ $ \newcommand{\Argument}{\mathrm{Arg}}$ $ \newcommand{\norm}[1]{\| #1 \|}$ $ \newcommand{\inner}[2]{\langle #1, #2 \rangle}$ $ \newcommand{\Span}{\mathrm{span}}$$\newcommand{\AA}{\unicode[.8,0]{x212B}}$

It is sometimes more informative to express all the dollar amounts as a percentage of one of the amounts in the base year rather than to look only at the dollar amount of the item in the financial statements. You can calculate trend percentages by dividing the amount for each year for an item, such as net income or net sales, by the amount of that item for the base year:

\begin{equation}
\text { Trendpercentage }=\frac{\text { Currentyearamount }}{\text { Baseyearamount }}
\end{equation}

To illustrate, assume that ShopaLot, a large retailer, and its subsidiaries reported the following net income for the years ended 2001 January 31, through 2010. The last column expresses these dollar amounts as a percentage of the 2001 amount. For instance, we would calculate the 125 per cent for 2002 as:

[(USD 1,609,000/USD 1,291,000)5 100]

	Dollar Amount
	of Net Income	Percentage of
	(millions)	1991 Net Income
1991	$1,291	100 %
1992	1.609	125
1993	1,995	155
1994	2,333	181
1995	2,681	208
1996	2,740	212
1997	3,056	237
1998	3,526	273
1999	4,430	343
2000	5,377	416
2001	6,295	488

Examining the trend percentages, we can see that ShopaLot's s net income has increased steadily over the 10-year period. The 2010 net income is over 4 times as much as the 2001 amount. This is the kind of performance that management and stockholders seek, but do not always get.

In the first three chapters of this text, you have learned most of the steps of the accounting process. Chapter 4 shows the final steps in the accounting cycle.

An accounting perspective:

Uses of technology

The Internet sites of the Big-4 accounting firms are as follows:

Ernst & Young http://www.ey.com

Deloitte Touche Tohmatsu http://www.deloitte.com

KPMG http://www.kpmg.com

PricewaterhouseCoopers http://www.pwcglobal.com

You might want to visit these sites to learn more about a possible career in accounting.