Examples of trend analysis in accounting and auditing
2. Trend analysis of sales and orders shipped
This analysis may be utilized when management wants to understand how the number of orders shipped impacts sales. This type of analysis can also be used to understand an average sale per order which may be helpful when a company decides about shipping policies/costs, etc.
Let’s take a look at the following table showing the sales and number of orders shipped over five periods:
Period 1 |
Period 2 |
Period 3 |
Period 4 |
Period 5 |
|
Sales |
$750,000 |
$850,000 |
$900,000 |
$1,100,000 |
$1,150,000 |
Change ($) |
$100,000 |
$50,000 |
$200,000 |
$50,000 |
|
Change (%) |
13% |
6% |
22% |
5% |
|
Orders Shipped |
700 |
1,200 |
1,600 |
2,300 |
3,000 |
Change (Count) |
500 |
400 |
700 |
700 |
|
Change (%) |
71% |
33% |
44% |
30% |
The information in the table shows solid performance over the five periods. Sales and orders shipped increase during each period.
Does the picture look that great, though? It’s hard to answer without digging a little deeper. Let’s take a look at the graph below which shows the sales and orders shipped information:
The graph shows the same increasing sales and orders shipped. However, upon closer examination, we can see that the sales do not increase at the same rate as orders shipped. This tells us that the sales per order shipped are deteriorating which can be corroborated by calculating the average sale per order:
Period 1 |
Period 2 |
Period 3 |
Period 4 |
Period 5 |
|
Sales per Order |
$1,071 |
$708 |
$563 |
$478 |
$383 |
Change ($) |
($363) |
($146) |
($84) |
($95) |
|
Change (%) |
-34% |
-21% |
-15% |
-20% |
Note: To calculate the average sale per order shipped, divide the sales for the period by the orders shipped. For example, for Period 1, the calculation is as follows: $750,000 ÷ 700 = $1,071.
Does the decrease in sales per order shipped represent an alarming development over the five periods? Not necessarily. It may be the company’s intent to increase the orders shipped over time. However, at the same time, the company may want to investigate and take measures if the decreasing sales per order shipped numbers are not what the company wants or expects.
- What is difference between accounting and auditing?
- What is meant by materiality in accounting?
- How to use trend analysis in accounting?
- Are audit fees lower when auditors trust management more?
- Are there changes in the work-life balance and attractiveness of public accounting?
- Fundamental analysis and accounting information
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