This method isolates the seasonality by smoothing out the trend using a moving average, leaving only the seasonal fluctuations to analyze.
Since you likely have several years of data, you will have multiple ratios for "Quarter 1." To find a reliable index, you must average them to account for year-to-year anomalies. Group all "Quarter 1" ratios and find their mean. Repeat this for Quarters 2, 3, and 4. Step 5: Adjust the Seasonal Indices
To recap the process:
The formula is simple: $$ \textRatio = \frac\textActual Sales\textCentered Moving Average (CMA) $$
Once you have your seasonal index, you can "deseasonalize" your data to see the true underlying trend of your business. Simply divide your actual sales by the seasonal index. This allows you to see if a "dip" in sales is just a seasonal trend or a genuine decline in your business performance. how to find seasonal index
The first step in finding the seasonal index is to remove the "noise" and the "trend" from your data. We do this by calculating a moving average.
It is a measure of relative change.
This result now aligns perfectly with the third period in your data set. Step 3: Find the Ratio of Actual Value to CMA