Financial reports, such as a balance sheet, provide valuable information to managers on the performance of a company. However, without a baseline to compare the data on a balance sheet with, it is difficult to judge the overall trajectory of a company. Trend analysis provides management with a bird's eye view of the performance of a business throughout time by representing the data from the financial reports of several years as a percentage of the financial data of a base year.
Select the range of your trend analysis. Trend analysis can span anything from a few years to decades or even hundreds of years depending on the business or institution you analyze.
Choose what balance sheet data you want to include in the trend analysis. You can focus on one type of data, such as shareholder's equity, or compare the trend of several types of data, such as inventory, sales and net income.
Select the balance sheet data of one year as your base year. It can be the first year you started business, the first year your company broke even or some other arbitrary reason that fits the purpose of your trend analysis. This is your baseline year. All balance sheet data from this year is represented as 100 percent. The data from other years within your trend analysis range are represented as a percentage of this year.
Create a spreadsheet with as many columns as years in your trend analysis range and as many rows as data types. For instance, if you wish to calculate the trend analysis for the sales, inventory and net profit for the last five years, you need a spreadsheet with five columns and three rows.
Divide the data of each year and type by its corresponding item in the base year. For instance, if your sales in your base year was $10,000 and the sales in the year you are assessing was $20,000, your result would be 2.
Multiply your result by 100. Enter the result in your spreadsheet. Do the same for each data type for all the years in your trend analysis range.
Represent the results of the trend analysis on a line plot to visually describe the growth or decline of the company.
Choose your base year wisely. The results of a trend analysis can vary a lot depending on which year you choose as a benchmark. In most cases, it its best to choose a highly representative year instead of a year with particularly high or low performance data.
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