What is trend analysis?

In the analysis of financial information, trend analysis is the presentation of amounts as a percentage of a base year. 

If I want to see the trend of a company’s revenues, net income, and number of clients during the years 2001 through 2007, trend analysis will present 2001 as the base year and the 2001 amounts will be restated to be 100. The amounts for the years 2002 through 2007 will be presented as the percentages of the 2001 amounts. In other words, each year’s amounts will be divided by the 2001 amounts and the resulting percentage will be presented. For example, revenues for the years 2001 through 2007 might have been $31,691,000; $40,930,000; $50,704,00; $63,891,000; $79,341,000; $101,154,000; $120,200,000. These revenue amounts will be restated to be 100, 129, 160, 202, 250, 319, and 379. Let’s assume that the net income amounts divided by the 2001 amount ended up as 100, 147, 206, 253, 343, 467, and 423. The number of clients when divided by the base year amount are 100, 122, 149, 184, 229, 277, and 317. From this trend analysis we can see that revenues in 2007 were 379% of the 2001 revenues, net income in 2007 was 467% of the 2001 net income, and the number of clients in 2007 was 317% of the number in 2001. Using the restated amounts from trend analysis makes it much easier to see how effective and efficient the company has been during the recent years.

Trend analysis can also include the monitoring of a company’s financial ratios over a period of many years.

Learn more about Financial Ratios.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the author of the 2010 Master Accounting Download Package which has been praised for it's ability to simplify accounting in a way that anybody can understand.