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Trend Percentages quiz #1

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  • What are trend percentages in financial analysis, and how are they calculated?
    Trend percentages are a form of horizontal analysis used to show how specific financial accounts change over time. They are calculated by dividing the amount for each year by the amount in the base year (usually the oldest year) and multiplying by 100. The base year's trend percentage is always 100%.
  • How do trend percentages help in analyzing a company's financial performance over several years?
    Trend percentages help identify patterns of growth or decline in financial accounts by showing how each year's figures compare to a base year. This allows analysts to easily spot trends, such as consistent growth, stability, or decline, in key financial metrics over time.
  • What is the purpose of using trend percentages in financial analysis?
    Trend percentages are used to show how specific financial accounts change over time, helping to identify patterns of growth or decline.
  • How do you determine the base year when calculating trend percentages?
    The base year is typically the oldest year in the data set, and its trend percentage is always set at 100%.
  • What is the formula for calculating a trend percentage for a given year?
    Divide the amount for the year by the base year's amount and multiply by 100 to get the trend percentage.
  • If the income from operations in 2015 is $1,129,000 and the base year (2014) is $842,000, what is the trend percentage for 2015?
    The trend percentage for 2015 is (1,129,000 / 842,000) × 100 = 134%.
  • What does a trend percentage greater than 100% indicate about a financial account?
    A trend percentage greater than 100% indicates that the account has increased compared to the base year.
  • What does a trend percentage less than 100% indicate about a financial account?
    A trend percentage less than 100% means the account has decreased compared to the base year.
  • How can trend percentages help analysts understand a company’s financial performance over several years?
    They allow analysts to easily spot trends such as consistent growth, stability, or decline in key financial metrics over time.
  • In the example provided, what trend was observed in income from operations from 2014 to 2018?
    Income from operations grew from 2014 to 2016, then declined in 2017 and 2018, as shown by the trend percentages.