Question

Rotorua Products, Ltd., of New Zealand markets agricultural products for the burgeoning Asian consumer market. The company’s current assets, current liabilities, and sales over the last five years (Year 5 is the most recent year) are as follows:

	Year 1			Year 2			Year 3			Year 4			Year 5
Sales	$	4,504,310		$	4,838,440		$	5,003,570		$	5,532,780		$	5,644,610
Cash	$	87,574		$	96,953		$	86,589		$	88,508		$	80,997
Accounts receivable, net		418,154			435,330			443,074			510,098			562,711
Inventory		815,081			875,927			827,874			886,671			896,947
Total current assets	$	1,320,809		$	1,408,210		$	1,357,537		$	1,485,277		$	1,540,655
Current liabilities	$	304,021		$	348,173		$	335,191		$	331,789		$	392,706

Required:

1. Express all of the asset, liability, and sales data in trend percentages. Use Year 1 as the base year. (Round your percentage answers to 1 decimal place (i.e., 0.1234 should be entered as 12.3).)

	Year 1	Year 2	Year 3	Year 4	Year 5
Sales	%	%	%	%	%
Current Assets:
Cash	%	%	%	%	%
Accounts Recievable	%	%	%	%	%
Inventory	%	%	%	%	%
Total Current Assets	%	%	%	%	%
Current Liabilities	%	%	%	%	%

Answer 1

Solution:

Trend Percentages

	Year 1 (Base Year)	Year 2	Year 3	Year 4	Year 5
Sales (WN1)	100%	107 .4 %	111.1 %	122.8 %	125.3 %
Current Assets:
Cash (WN 2)	100%	110.7 %	98. 9%	101.1 %	92.5 %
Accounts Receivable (WN 3)	100%	104.1 %	105.9 %	122.0 %	134.6 %
Inventory (WN 4)	100%	107. 5 %	101.6 %	108.8 %	110.0 %
Total Current Assets (WN 5)	100%	106.6 %	102. 8 %	112. 5 %	116.6 %
Current Liabilities (WN 6)	100%	114.5 %	110. 3 %	109.1 %	129.2 %

Trend analysis is a technique of financial analysis, where amounts are expressed as percentage of base year. The values of base year are taken as 100 % and rest of the years values are expressed as percentage of base year value .In the given question it is given that “Year 1” is “Base year”. So, all the asset, liability, and sales data of different years given will be expressed as percentage of base year that is Year 1.

Working Notes (WN):

Trend percentage = Analysis Year Amount or Current Year / Base Year Amount X 100

1. Sales Trend Percentage

Year 1 = $ 4,504,310 / $ 4,504,310 X 100 = 100%

Year 2 = $ 4,838,440 / $ 4,504,310 X 100 = 107 .4 %

Year 3= $ 5,003,570 / $ 4,504,310 X 100 = 111.1 %

Year 4 = $ 5,532,780 / $ 4,504,310 X 100 = 122.8 %

Year 5 = $ 5,644,610 / $ 4,504,310 X 100 = 125.3 %

2. Cash Trend Percentage

Year 1 = $ 87,574 / $ 87,574 X 100 = 100%

Year 2 = $ 96,953 / $ 87,574 X 100 = 110.7 %

Year 3= $ 86,589 / $ 87,574 X 100 = 98.9 %

Year 4 = $ 88,508 / $ 87,574 X 100 = 101.1 %

Year 5 = $ 80,997 / $ 87,574 X 100 = 92.5 %

3. Accounts receivable, net Trend Percentage

Year 1 = $ 418,154 / $ 418,154 X 100 = 100%

Year 2 = $ 435,330 / $ 418,154 X 100 = 104.1 %

Year 3= $ 443,074 / $ 418,154 X 100 = 105.9 %

Year 4 = $ 510,098 / $ 418,154 X 100 = 122.0 %

Year 5 = $ 562,711 / $ 418,154 X 100 = 134.6 %

4. Inventory Trend Percentage

Year 1 = $ 815,081 / $ 815,081 X 100 = 100%

Year 2 = $ 875,927 / $ 815,081 X 100 = 107. 5 %

Year 3= $ 827,874 / $ 815,081 X 100 = 101.6 %

Year 4 = $ 886,671 / $ 815,081 X 100 = 108.8 %

Year 5 = $ 896,947 / $ 815,081 X 100 = 110.0 %

5. Total Current Assets Trend Percentage

Year 1 = $ 1,320,809 / $ 1,320,809 X 100 = 100%

Year 2 = $ 1,408,210 / $ 1,320,809 X 100 = 106.6 %

Year 3= $ 1,357,537/ $ 1,320,809 X 100 = 102. 8 %

Year 4 = $ 1,485,277 / $ 1,320,809 X 100 = 112. 5 %

Year 5 = $ 1,540,655 / $ 1,320,809 X 100 = 116.6 %

6. Current Liabilities Trend Percentage

Year 1 = $ 304,021 / $ 304,021 X 100 = 100%

Year 2 = $ 348,173 / $ 304,021 X 100 = 114.5 %

Year 3= $ 335,191 / $ 304,021 X 100 = 110. 3 %

Year 4 = $ 331,789 / $ 304,021 X 100 = 109.1 %

Year 5 = $ 392,706 / $ 304,021 X 100 = 129.2 %