Trend Analysis

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```					Question:

The following sales and accounts receivable information is available for the Partridge Pear Tree
Company.

2005        2006       2007
Net Sales                    \$112,000 \$136,000 \$158,000

Accounts Receivable (net) \$21,000        \$32,000    \$43,000

Using 2005 as the base year, prepare a trend analysis on the above data and tell whether the
results suggest a favorable or unfavorable trend and why. You may round your answer to one
decimal point in making your analysis.

Solution:

Trend Analysis

Partridge Pear Tree Company

YEAR               2005        2006       2007
SALES              \$112,000 136000        158000
% of Increase                  21.4%      16.2%

Analysis:

The sales have increased year after year in absolute terms. This is welcome and encouraging. As
profit depends on increased sales and increased market, share this trend is good and
encouraging.
Partridge Pear Tree Company
YEAR               2005       2006       2007
% of Increase                 21.4%      16.2%

Analysis:

Though sales has increased year after year in absolute terms, the growth rate has slowed down
from 21.43% to 16.18%. As profit depends on increased sales and increased market share this
decreasing pace of growth trend is causing concern .
Partridge Pear Tree Company
YEAR                          2005          2006      2007

Accounts Receivable           \$21,000       32000     43000
% of Increase                               52.4%     34.4%

Analysis:

The continued increase is expected along sales. The growth rate decline is welcome as it
indicates that more amounts are collected.

Partridge Pear Tree Company
YEAR                   2005             2006        2007

Accounts Receivable
as % of Sales          18.8%            23.5%       27.2%

Analysis:

The continued increase is expected along sales. However this increasing trend should be
arrested. So that more amounts are collected and efficiency improved.
Partridge Pear Tree Company
YEAR                      2005       2006         2007
Days          Accounts
Receivable
outstanding               68.4       85.9         99.3

Analysis: The continued increase of number of days to collect the receivable along sales is most
disturbing. It indicates the growth in sales is obtained through slackness in collection period.
However this increasing trend should be arrested. So that more amounts are collected quickly
and efficiency improved.

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