Which method is often used to perform a comparison between financial years in trend analysis?

The method of year-over-year percentage change is a commonly used approach in trend analysis because it allows for a clear comparison of financial performance over different years. This method calculates the percentage increase or decrease of a financial metric from one year to the next, giving insights into growth trends, profitability changes, or other key financial indicators across time periods.

By expressing the change as a percentage, stakeholders can more easily assess the relative performance of a company on a year-over-year basis, facilitating more intuitive comparisons despite variations in absolute values. This approach is particularly useful for identifying growth patterns, potential issues, and overall financial health, as it accounts for inflation and other economic factors that might influence year-on-year performance.

Other methods like running totals, quarterly averages, and static thresholds can provide useful information but do not focus specifically on comparative changes between years in the same way. Running totals aggregate data over time, making it helpful for observing trends but not for comparing distinct years directly. Quarterly averages standardize data to a different time frame, while static thresholds set fixed limits that may or may not reflect varying conditions over time, limiting their effectiveness in capturing change relative to previous years.