Jun 3, 2011

What is Trend Analysis

Trend analysis is used when it is necessary to analyze the trend data presented in a series of statements from several consecutive years. The tendency of such an analysis is obtained as a percentage. Trend analysis of percentage movements in a sense, the progress up or down or regression. This method involves calculating the percentage ratio that any statement on the same point in the door in the base year.
The base year is one of the periods involved in the analysis, but as soon as is usually taken as the base year. The trend of the percentage declaration is a "tool of analysis to condense the data rupee absolute" in the comparative statements.

Merits of trend analysis:
• Trend percentages show the increase or decrease in a recognized position with the magnitude of change in percent, which is more effective than the absolute data.
• The percentages tend to facilitate effective comparative study on the financial performance of an enterprise over a period of time.

The drawbacks of the trend analysis:
• Any trend itself is not very analytical and informative.
• If the interpretation must be based on percentages and ratios are carried out in isolation and not with the absolute data from which the percentages were obtained, the findings tend to be absurd and baseless.
• The comparability of trend percentages will be affected if the accounts are prepared on a consistent basis year after year and if the price level is not constant.
• During periods of inflation, data over a longer period of time is unprecedented, if enabled, data rupeee absolute.
• There is always the danger of choosing the base year, which may not be representative of normal and typical.
• Although the percentages tend to give important information, too much importance and weight should not be placed on the percentages when a small number in the base year. In such cases, even a slight variation will be increased by the percentage change.

Used
• There is an increase or decrease a recognized position with the magnitude of percentage changes is more effective than absolute data.
• The trend rate facilitates effective comparative study on the financial performance of a company over time.

1 comment:

  1. I have some small definition of Trade analysis. here it is :

    An aspect of technical analysis that tries to predict the future movement of a stock based on past data. Trend analysis is based on the idea that what has happened in the past gives traders an idea of what will happen in the future.

    i also read your post. good one. Thank you.

    ReplyDelete

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