The changes in financial statement items from a base year to following years are often expressed as trend percentages to show the extent and direction of change. Two steps are necessary to compute trend percentages. First, a base year is selected and each item in the financial statements for the base year is given a weight of 100 percent. The second step is to express each item in the financial statements for following years as a percentage of its base-year amount. This computation consists of dividing an item such as sales in the years after the base year by the amount of sales in the base year.
For example, assume that 2000 is selected as the base year and that sales in the base year amounted to $200,000 as shown in the following table. The trend percentages for sales are computed by dividing the sales amount of each following year by $200,000.Also shown in the illustration are the yearly amounts of net income. The trend percentages for net income are computed by dividing the net income amount for each following year by the base-year amount of $12,000.
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