Definition and Explanation:
Horizontal analysis of financial statements can also be carried out by computing trend percentages. Trend percentage states several years’ financial data in terms of a base year. The base year equals 100%, with all other years stated in some percentage of this base.
Consider McDonald’s Corporation, the largest global food service retailer, with more than 26,000 restaurants worldwide. McDonalds enjoyed tremendous growth during the 1990s, as evidenced by the following data:
By simply looking at these data, one can see that sales increased every year. But how rapidly sales have been increasing, and have the increases in net income kept pace with the increase in sales? It is difficult to answer these questions by looking at the raw data alone. The increases in sales and the increases in net income can be put into better perspective by stating them in terms of trend percentages, with 1990 as the base year. These percentages (all rounded) appear as follows:
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