Which of the following best describes trend analysis?
A) calculating key ratios to evaluate performance
B) expressing each financial statement amount as a percentage of a budgeted amount
C) comparing a company's financial statements with that of other companies
D) expressing each year's financial statement line item as a percentage of the base year amount

Question

Quizplus · Accepted Answer

Trend analysis involves expressing each year's financial statement line item as a percentage of a base year amount to analyze changes in financial performance over time. This allows for the identification of trends and patterns that may require further investigation or action. Calculation of key ratios (option A) can also be useful, but it is not specifically related to trend analysis. Expressing financial statements as a percentage of a budgeted amount (option B) is known as variance analysis and involves evaluating actual performance against planned or expected performance. Comparing a company's financial statements with that of other companies (option C) is known as benchmarking and involves evaluating a company's performance relative to its peers.

Which of the Following Best Describes Trend Analysis