A single year's statement is a photograph. A mortgage file is a bet on the future, and the only real evidence about the future is a trend — which by definition requires at least two data points to see at all. A strong single year could be an aberration in either direction; a second year is what turns a snapshot into a story.
Revenue, net income, retained earnings, and total shareholder equity, for the two (or more) most recent fiscal years. Most accountant-prepared financial statements already present the prior year in a second column for exactly this reason, which makes this comparison faster than it might first appear.
Consistent, moderate growth across both years is the strongest possible story. A single spike in one year against an otherwise flat history deserves an explanation — a one-time contract, a large one-off sale — before it's assumed to represent the new normal. A decline that's stabilizing between the two years is a meaningfully different, better story than a decline that's accelerating, even when the most recent year's raw number happens to be identical in both cases.
A rising retained earnings balance (Module 03) alongside rising net income is corroborating evidence pointing the same direction. A shareholder deficiency (Module 04) that's shrinking year over year tells a very different story than one that's growing. And the corporate year-end timing (Module 05) tells you exactly how current that most recent column of numbers actually is before you trust it too heavily.
Once a two-year trend is read and understood, deciding what qualifying income that trend actually supports — a straight average, the most recent year, the lower of the two years — is a lending decision that belongs to Course 03's income modules, not this one. This course's job ends here, at "here is what actually happened, and here is what it appears to be trending toward."
A corporation's net income was $65,000 two years ago, $71,000 last year, and its retained earnings grew steadily across both years. A second business had net income of $40,000 two years ago and $95,000 last year, driven entirely by one large, one-time contract. Which comparison best describes the two trends?
Consistent, moderate growth confirmed by a second, independent signal — rising retained earnings — is exactly the reliable pattern this module describes, while a large jump driven by one identified one-time contract is the textbook case of a spike that needs investigation before it's trusted as the new baseline. Treating both as equally strong ignores that very different story, and simply favouring the bigger dollar increase rewards the less reliable trend. Two years is enough to see a real pattern begin to emerge — it doesn't need to be dismissed as unusable while waiting for a third.
Lender policies change without notice. Confirm current guidelines directly with the lender or insurer before relying on them for a live file.
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