Assume after calculation you get these average ratios per quarter:
The final average for each month is your Seasonal Index.
To understand if a business is truly growing, one must strip away the "noise" of seasonality. By dividing actual sales by the seasonal index, analysts can "deseasonalize" the data. This reveals the underlying trend (Secular Trend) and cyclical movements, allowing for an apples-to-apples comparison between different time periods.
If the average of your raw seasonal indices is not exactly 1, adjust them:
Because you will have multiple ratios for the same month across different years (e.g., a ratio for Jan 2021, Jan 2022, and Jan 2023), you calculate the average of these ratios. This eliminates irregular, one-off events (like a blizzard or a pandemic) that might have skewed a single year's data.
Without seasonal index, you might think December’s jump is a permanent growth trend – and be disappointed in January.
Assume after calculation you get these average ratios per quarter:
The final average for each month is your Seasonal Index. seasonal index
To understand if a business is truly growing, one must strip away the "noise" of seasonality. By dividing actual sales by the seasonal index, analysts can "deseasonalize" the data. This reveals the underlying trend (Secular Trend) and cyclical movements, allowing for an apples-to-apples comparison between different time periods. Assume after calculation you get these average ratios
If the average of your raw seasonal indices is not exactly 1, adjust them: This reveals the underlying trend (Secular Trend) and
Because you will have multiple ratios for the same month across different years (e.g., a ratio for Jan 2021, Jan 2022, and Jan 2023), you calculate the average of these ratios. This eliminates irregular, one-off events (like a blizzard or a pandemic) that might have skewed a single year's data.
Without seasonal index, you might think December’s jump is a permanent growth trend – and be disappointed in January.