A trend percentage is a type of horizontal analysis that shows a change in a financial statement account over a period of time. The first, or earliest, year of the trend is the "base year," with which you compare the amounts in each subsequent year. You convert the amounts of each subsequent year into a percentage of the base year amount in separate columns. For example, the third year's amount may be 150 percent of the base year. You can calculate trend percentages for one or multiple accounts to identify areas of strength or weakness on a company's financial statements.
Step 1
Determine the dollar amounts of an account for a time period of more than two years. For example, you might calculate the trend percentages of a cash account that had $5,000 in the first year, $6,300 in the second year and $4,700 in the third year.
Step 2
Write "100 percent" in the first column on a sheet of paper to represent the base year percentage.
Step 3
Divide the amount in the second year by the amount in first year and multiply by 100 to calculate the trend percentage for the second year. For example, divide $6,300 by $5,000, which equals 1.26. Multiply this by 100 to arrive that the percentage: 126 percent. A percentage greater than 100 means the account has increased compared with the base year.
Step 4
Write your result as a percentage in the second column on the sheet of paper to represent the second year's percentage. For example, write "126 percent" in the second column to represent the cash account's growth in the second year compared to the base year.
Step 5
Divide the amount of the account in the third year by the amount in the first year and multiply by 100 to calculate the trend percentage for the third year. In our example, you'd divide $4,700 by $5,000, then multiply by 100, to arrive at 94 percent. A percentage of less than 100 means that the account has decreased compared to the base year.
Step 6
Write your result as a percentage in the third column on the sheet of paper to represent the third year's percentage. For example, write "94 percent" in the third column to represent that the account decreased to 94 percent in the third year compared to the base year.