Trend analysis is one of the tools for the analysis of the company’s monetary statements for the investment purposes. Investors use this analysis tool a lot in order to determine the financial position of the business. In a trend analysis, the financial statements of the company are compared with each other for the several years after converting them in the percentage. In the trend analysis, the sales of each year from the 2008 to 2011 will be converted into percentage form in order to compare them with each other.
Other analysis techniques
Apart from trend analysis, the investors also use other techniques for the analysis purposes, and this helps them in achieving complete data and updated view on the company’s current financial position.
Formula of calculating trends
Formula for converting the figures:
In order to convert the figures into percentages for the comparison purposes, the percentages are calculated in the following way:
Trend analysis percentage = (figure of the previous period – figure of the current period)/total of both figures
The percentage can be found this way and if the current-year percentages were greater than previous year percentage, this would mean that current-year result is better than the previous year result.
Trend analysis has a great advantage that it can also be used to predict the future events. This is possible by forecasting the future cash flow based on the data available of the past. With the help of trend analysis, you can predict the future and track the variances to add performance.
However, in management accountancy, the calculation of trends is based on the data of the past. This is favorable in deducing the current situation of the company and the increase in the financial position of the company and growth over the past years.
Apart from investments and financial data of the company, the trend analysis is also a useful tool that can be used effectively for the projections. This allows the company to conduct market research and draw trends to forecast the demand of different products. This helps in the marketing purposes, and company can deduce results to select the right marketing approach to address the issues. Trend analysis can pretty much apply to all the techniques, which requires forecasting therefore, that it is a very useful tool in business.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
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- IFRS Interpretations (EU)
- Financial software