Introduction
Trend analysis is one of the most commonly used financial statement analysis method in the business world. This analysis shows the changes in the amounts in the corresponding financial statements accounts for a given period. The analysis is important in the process of evaluating trend situations of the organizations. However, this paper seeks to cover the financial statements for the following period: 2019, 2018 and 2017. In this case, the base year of analysis is the financial statements for 2017.
Trend Analysis for Income Statement
The income statement accounts have been changing significantly. The revenue and operating expenses accounts have been increasing between 2017 and 2019. The revenues were $39,403, $42,151 and $42,879 for 2017, 2018 and 2019 respectively. Also, the operating expenses were $37,549, $40,308 and $40,979 in 2017, 2018 and 2019 respectively. These changes have no impact on the financial analysis calculation because the trend analysis is given by: (Amount of account in comparison - Amount of the account in the base year)/Amount of Account in the base year*100. The increase in the revenue was as a result of increased market share and efficiency through improved stores, hence high sales revenue. On the other hand, the operating expenses were increasing because the company engaged in advertising and create brand awareness.
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The Income after taxes account has been fluctuating between the study period; $1,207, $999 and 1,464 for 2017, 2018 and 2019 respectively. The changes have no influence of the calculation of the financial statement trend analysis. The drop in the income after tax account between 2017 and 2018 was as result of stiff competition from giant companies like Amazon. Between 2018 and 2019, the account increased because the company gained large market share, thus high sales revenue. The business decisions that caused the increase in the revenue, income after tax, and the operating expense for the period are product differentiation, increasing market share, and efficiency in providing services to the customers. The decline in the income after tax between 2017 and 2018 is as a consequence of the decisions by the company to operate without countering the stiff competition from other firms.
Trend Analysis for Balance sheet
In the balance sheet, all accounts changed for the period between 2017 and 2019. These accounts include total assets, total liabilities, and total shareholders’ equity. The total asset account has been decreasing between 2017 and 2019; $13,856, $13,049 and $12,901 for 2017, 2018 and 2019 respectively. Consequently, the total liabilities account has been increasing for the 3 years i.e. $9147, $9,437 and $9,595 for 2017, 2018 and 2019 respectively. More so, the shareholders’ equity account has been declining i.e. $4,709 in 2017, $3,612 in 2018 and $3,306 in 2019. The changes in these accounts have no impact on the financial statement trend analysis calculation.
The total assets account was decreasing because the value of the shareholders equity was declining between 2017 and 2019. On the other hand the total liabilities account was declining because the firm’s increased inefficiency hence increase in the obligations. The shareholders equity was dropping because the assets were poorly managed. The business decisions that may have caused the change were using loans and other obligations to finance the company’s operations, hence, increasing liabilities, and inefficient management of the assets.
References
Best Buy Income Statement 2005-2019. (2019). Macrotrends , https://www.macrotrends.net/stocks/charts/BBY/best-buy/income-statement .
