Fluctuation Variance

What Is Fluctuation Variance Analysis?

Fluctuation variance analysis (also called flux analysis) is an accounting tool that involves the comparison of balances for two accounting periods to identify and analyze significant variations.

It is one of many types of analyses that can be performed on a business’s financial statements.

The fluctuation analysis typically compares the ending balance for the current accounting period with the ending balance for a previous period to establish historical deviations.

It is distinct from a variance analysis which compares planned or projected behavior with actual behavior for a particular reporting period. In a variance analysis, accountants will compare projected sales, for example, with actual sales figures for the reporting period in question to find discrepancies or errors in budgeting or projections.

In a fluctuation analysis, accountants will compare the ending balances for two reporting periods to analyze differences or “fluctuations” in actual behavior. The fluctuation variance analysis is also referred to as a horizontal analysis because compares similar items from two periods “across the horizon of time” or “horizontally.”

It is distinct from a vertical analysis, which compares two items from within the same statement or reporting period.

When Is a Fluctuation Analysis Performed?

A flux analysis can be performed on different types of financial statements, including income statements, balance sheets, and cash flow statements. It can also be performed on a variety of financial indicators within those statements.

Profit margins, inventory, and cost of goods sold are a few of the many line items that can be analyzed using the fluctuation method.

How Is a Fluctuation Analysis Performed?

A fluctuation analysis will be performed in multiple steps:

  1. Identify the item or balance that is to be analyzed and gather the appropriate statement and relevant data from that statement.

  2. Define the parameters of the analysis. Accountants identify the year or accounting period to be compared to the base or current statement and gather the same data from the statement for that period.

  3. Perform the calculation, which is composed of several steps. The first calculation will determine the quantity of change between the two periods, by subtracting the previous item from the current or base value. The next step divides the difference by the starting value or the value of the previous statement. Finally, multiplying the quotient by 100 results in a figure that shows the percentage change in the value under review.

  4. It is important to note that a flux analysis can be performed by comparing actual dollar amounts or percentages. Furthermore, a flux analysis can be performed on multiple accounting periods over a period of time to identify trends or patterns. In this form of flux analysis, the values for each succeeding period are expressed as a percentage of the starting year value to identify trends over time. The starting value will be expressed as 100%. This is also referred to as a base-year analysis.

It is important for accountants to ensure that they are comparing comparable figures (apples to apples) in different reporting periods to ensure the accuracy of the analysis.

Finally, it is important for accountants to identify the root causes of change that are identified by the analysis. Sometimes variations are caused by errors that need to be corrected.

Deviations can also be caused by material changes in the operation of the business, such as increased purchases, price changes, an increase or decrease in demand, poor sales, and others.


Balance Sheets
Base-year Analysis
Cash Flow Statement
Financial Analysis
Financial Close
Financial Statements
Horizontal Analysis
Income Statements
Profit and Loss Statement
Variance Analysis
Vertical Analysis


Why Is a Fluctuation Analysis Important?

A flux analysis provides valuable insight for management and other stakeholders in the business, including lenders and investors.

  • The analysis allows a business to identify and explain significant and unexpected changes from a previous reporting period

  • Sometimes a flux analysis reveals errors in accounting or record keeping

  • A flux analysis may also identify miscalculations in budgeting or forecasting that management can take into consideration for future budgets

  • A flux analysis can identify patterns of growth for management and for investors considering the performance of the business

What Is an Example of a Flux Analysis?

An example of a flux analysis is a company that manufactures widgets. If the company reported $120,000 in sales in the current quarter (base reporting period) and $100,000 in sales in the previous quarter, the calculation would be performed as follows:

  1. Sales in the current period minus sales in the preceding period ($120,000 - $100,000 = $20,000)

  2. The difference in sales for the two periods divided by the starting period balance ($20,000 ÷ $100,000 = .20)

  3. The percentage change from one period to the next is calculated as .20 X 100 = 20%

The analysis reveals that sales had increased by 20% in the current quarter compared to the previous period.

When Is a Flux Analysis Performed?

A flux analysis can be performed at the end of a reporting period to compare with previous reporting periods. It can also be performed quarterly or annually.

In any of these cases, the analysis can be performed by comparing the previous comparable periods, such as month to month, quarter to quarter, or year to year. It can also be performed on multiple reporting periods to establish a trend line.

For example, a business can perform a flux analysis on each of the twelve months of the year to establish trends or patterns over the course of the entire year.

What Is a Vertical Analysis?

Whereas a fluctuation or horizontal analysis compares the same figure for two reporting periods “across the horizon,” a vertical analysis examines items within the same financial statement.

It looks at specific line items and represents them as a percentage of the larger balance.

In the above example of the widgets manufacturer, a vertical analysis might look at sales of a particular type of widget as a percentage of total or gross sales for the entire company.

BlackLine Variance Analysis

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