In regards to trend analysis over time, which of the following statements is TRUE?
A) We often look at the past five years of financial statements to establish trends and then predict future performance based on these trends.
B) To look at trends over time requires that we examine a financial statement at one point in time.
C) The net income last year was $20,000 and the past five years has shown an increase of 10% on average for each of these five years. The predicted net income for next year is still $20,000.
D) It is better to predict future performance by basing it solely on net income than on all the individual accounts.

Question

Quizplus · Accepted Answer

Trend analysis involves looking at past financial statements over a period of time to identify patterns and trends. Generally, analysts look at the past 5-10 years of financial statements to establish trends and then use those trends to predict future performance. Therefore, statement A is true. Statement B is false because trend analysis requires examining financial statements over a period of time, not just at one point in time. Statement C is false because if the net income has shown a 10% increase over the past five years, we would predict next year's net income to be higher than $20,000. Statement D is false because analyzing all the individual accounts is necessary for a comprehensive understanding of a company's financial performance.

In Regards to Trend Analysis Over Time, Which of the Following