Financial Accounting

Trend Analysis – Meaning and Example

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

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

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

(1) the one year is taken as the base year; 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 the 100.

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

YearSalesStock(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

salesstockProfits 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 show cautiously 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 increase; 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.

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