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The term "trend analysis" refers to the concept of collecting information and attempting
to spot a pattern, or trend, in the information. In some fields of study, the term "trend
analysis" has more formally-defined meanings. [1] [2] [3]
Although trend analysis is often used to predict future events, it could be used to estimate
uncertain events in the past, such as how many ancient kings probably ruled between two
dates, based on data such as the average years which other known kings reigned.
[edit] History
Today, trend analysis often refers to the science of studying changes in social patterns,
including fashion, technology and the consumer behavior.
Trend Analysis
Trend analysis
calculates the percentage change for one account over a period of time of two years or
more.
Percentage change
1. Calculate the amount of the increase/(decrease) for the period by subtracting the earlier
year from the later year. If the difference is negative, the change is a decrease and if the difference is
positive, it is an increase.
2. Divide the change by the earlier year's balance. The result is the percentage change.
Calculation of Percentage Change
20X1 20X0 Increase/(Decrease) Percent Change
Cash $ 6,950 $ 6,330 $ 620 9.8%
Accounts Receivable, net 18,567 19,330 (763) (3.9%)
Calculation notes:
1. 20X0 is the earlier year so the amount in the 20X0 column is subtracted from the amount
in the 20X1 column.
2. The percent change is the increase or decrease divided by the earlier amount (20X0 in
this example) times 100. Written as a formula, the percent change is:
3.
4. If the earliest year is zero or negative, the percent calculated will not be meaningful. N/M
is used in the above table for not meaningful.
5. Most percents are rounded to one decimal place unless more are meaningful.
6. A small absolute dollar item may have a large percentage change and be considered
misleading.
Trend percentages
To calculate the change over a longer period of time—for example, to develop a sales trend—follow the
steps below:
Calculation notes:
1. The base year trend percentage is always 100.0%. A trend percentage of less than
100.0% means the balance has decreased below the base year level in that particular year. A trend
percentage greater than 100.0% means the balance in that year has increased over the base year. A
negative trend percentage represents a negative number.
2. If the base year is zero or negative, the trend percentage calculated will not be
meaningful.
In this example, the sales have increased 59.3% over the five-year period while the cost of goods sold has
increased only 55.9% and the operating expenses have increased only 57.5%. The trends look different if
evaluated after four years. At the end of 20X0, the sales had increased almost 20%, but the cost of goods
sold had increased 31%, and the operating expenses had increased almost 41%. These 20X0 trend
percentages reflect an unfavorable impact on net income because costs increased at a faster rate than
sales. The trend percentages for net income appear to be higher because the base year amount is much
smaller than the other balances.