Question

Why is it not appropriate to use a small base amount in % analysis in evaluating financial performance over years?

Answer 1

It is not appropriate to use small base amount in % analysis in evaluating financial performance , because if small base is used it will exaggerate the results and this will cause fault in future estimations and projections.

For example:

Years : . 2000 . 2001 . 2002 . 2003

Sales($). $ 36,000 . $ 28,000 . $ 40,000 . $ 47,000

% taking small amount that is $ 28,000 as base.

%. 2000 . 36,000/28,000 X 100 =94 .74

2001 . 28,000/28,000 X 100=100

2002. 40,000/28,000X100 = 142.86

2003 . 47,000/28,000X 100 = 167.86