Question

what questions should the analyst try to answer when analyzing the trend of a firm's sales number?

This is a discussion about the Income Statment and Stockholder's Equity

Answer 1

The questions that analyst try to answer when analyzing the trend of a firm's sales number are:

1)Question: How is trend analysis used to evaluate the financial health of an organization?

Answer: Trend analysis evaluates an organization’s financial information over a period of time. Periods may be measured in months, quarters, or years, depending on the circumstances. The goal is to calculate and analyze the amount change and percent change from one period to the next.

For example, in fiscal years 2010 and 2009, Coca-Cola had the operating income shown as follows. (Amounts are in millions. To convert to the actual amount, simply multiply the amount given times one million. For example, $8,449 × 1,000,000 = $8,449,000,000. Thus Coca-Cola had operating income of $8,449,000,000 in 2010.)

	Amount 2010	Amount 2009	Amount Change	Percent Change
Operating income	$8,449	$8,231	?	?

Although readers of the financial information can see that operating income increased from 2009 to 2010, the exact dollar amount of the change and the percent change is more helpful in evaluating the company’s performance. The dollar amount of change is calculated as follows:

Key Equation

Amount of change = Current year amount – Base year amount

$218=$8449-$8231

2) Question: As you can see, operating income increased by $218,000,000 from 2009 to 2010. Is this a significant increase for Coca-Cola?

Answer: Most of us consider $218,000,000 to be a huge amount, but the only way to gauge the true significance of this amount for Coca-Cola is to calculate the percent change from 2009 to 2010. The percent change is calculated as the current year amount minus the base year amount, divided by the base year amount.

Key Equation

Percent change = (Current year amount – Base year amount) ÷ Base year amount

The calculation that follows shows operating income increased 2.6 percent from 2009 to 2010. Although not an extraordinarily significant increase, this does represent positive results for Coca-Cola.