Trend Analysis – Meaning and Example

Trend analysis is the process of analyzing the financial statements by the computing trend of a series of information.

With the help of the trend analysis tool, we determine the directions upward or downward and compute the percentage relationship that each statement item bears to the same item in the base year.\

Main Features of Trend Analysis

At its core, trend analysis is looking at data that spans a particular period to identify consistent movements or changes-whether it is growth, decline, or seasonal variation. For example, a business might use trend analysis to understand consumer purchasing behaviour, a stock analyst will track price movements, and an economist will study the inflation rate to predict changes within the economy.

This technique is beneficial because it transforms raw data into usable knowledge. Organizations might identify opportunities, change their strategy, and lower risks if they understand trends. This article will outline the kinds of trend analysis, its uses in several industries, and how mastering this tool will help you in making decisions and give you an edge over others.

How to Perform Trend Analysis?

The procedures for calculating the trend analysis are as follows: –

(1) the one year is taken as the base year; the first and last year should be taken as the base year

(2) Figure 100 is taken as the base year

(3) The base year is taken while calculating the trend percentage.

If a figure in another year is less than the figure in the base year then trend percentage less than 100 on another hand if the figure in another year is more than the figure in the base year then trend percentage is more than 100.

Illustration: – Calculate the trend percentage from the following figure of XYZ Ltd. Taking 2008 as a base year

Year	Sales	Stock	(Rs. In Lakhs) Profits before tax
2008   2009 2010 2011 2012	1881   2340 2655 3021 3768	709   781 816 944 1154	321   435 458 527 627

year	sales	stock	Profits before tax
Amount   ($’000)	Trend   percentage	Amount   ($’000)	Trend   percentage	Amount   ($’000)	Trend   percentage
2008   2009 2010 2011 2012	1881   2340 2655 3021 3768	100   124 141 161 200	709   781 816 944 1154	100   110 115 133 162	321   435 458 527 672	100   136 143 164 209

Interpretation

The figure of sales shows a rapid increases from 2008 to 2012. The percentage in 2012 is 200 as compared to 100 in 2004. The increase in sales is quite satisfactory.

The figure for the stock has also continuously increased from 2008 to 2012. The profits before tax continuously increased; profit during 2011 and 2012 is much higher as compared to 2010. We conclude that the expansion of the firm is good and the figure for sales and profits has doubled in just five years.

The profits of the concern have increased more than sales which show that there is proper control in the cost of goods sold, other expenditure and overall performance of the concern.