What is trend analysis ?

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Q. What is trend analysis ?

Bihar BsebBSEB Bihar Intermediate (Class-12) Commerce Board 2025Subjective· 2mImportance★★★★★

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Concept understanding — Trend Percentage Analysis

Trend Percentage Analysis – A First Look

Think of a cricket player's performance over five seasons. You don't just look at the runs in each season; you ask: how much has this player improved compared to his first season? That's exactly what Trend Percentage Analysis does for a business's financial data.

Everyday Intuition

Suppose you earned ₹50,000 in 2020 and ₹60,000 in 2021. The increase is ₹10,000. But is that a big jump or a small one? To know, you compare it to the base year (2020). The trend percentage for 2021 would be:

\frac{60,000}{50,000} \times 100 = 120\%

This means your income in 2021 is 120% of what it was in 2020 — a 20% rise. Now imagine doing this for every item in a company's Profit & Loss statement over 5 years. That's Trend Percentage Analysis.

Precise Meaning

Trend Percentage Analysis (also called Horizontal Analysis) is a technique where each item in a financial statement (like Sales, Cost of Goods Sold, Net Profit) is expressed as a percentage of the same item in a base year. The base year is usually the earliest year in the series, and its value is taken as 100%.

\text{Trend Percentage} = \frac{\text{Current Year Figure}}{\text{Base Year Figure}} \times 100

For example, if Sales in 2020 (base year) were ₹2,00,000 and in 2023 they were ₹3,00,000, the trend percentage for 2023 is:

\frac{3,00,000}{2,00,000} \times 100 = 150\%

This tells you sales have grown to 150% of the base year level.

Why It Matters

Trend percentages reveal direction and speed of change — something absolute numbers hide. A company might show rising profits in rupees, but trend analysis could reveal that costs are rising even faster, squeezing margins. It helps:

Spot consistent growth or decline in sales, expenses, or profits.
Compare performance across years without being misled by inflation or size differences.
Identify problem areas (e.g., administrative expenses growing faster than sales).

Accounting Treatment – No Debit/Credit

Here's a crucial point: Trend Percentage Analysis is not a journal entry. It does not involve debiting or crediting any account. It is a financial analysis tool, not an accounting transaction. You never record "trend percentage" in the books of accounts.

Instead, it is presented in a comparative statement or a trend analysis table as part of financial statement analysis. The NCERT textbook (Class 12, Part B, Chapter on Financial Statement Analysis) shows it as a separate column in a comparative income statement or balance sheet.

Format / Proforma (as per NCERT) …

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Trend analysis expresses the figures of several years as percentages of a chosen base year (100) to reveal the direction and rate of change over time.

Trend analysis (trend percentage analysis) is a horizontal analysis tool used to study the behaviour of financial-statement items over a number of years. The steps are:

select one year as the base year and set each of its items at 100,
express the corresponding item of every other year as a percentage of the base-year figure. …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

CBSE 2026Set MARCH1 markMCQ
$Q. The expenses of the current year of a company is ₹ 6,00,000; and if it is increased by 20% compared to the previous year, what would be the expenses of the previous year?$
(a) ₹ 1,20,000
(b) ₹ 5,00,000
(c) ₹ 7,20,000
(d) None of these
›Reveal solutionSolution

The previous year's expenses work out to 5,00,000, so the answer is (b).

Current year expense = Previous year expense + 20% increase = 120% of previous year.

Let previous year = X.

120% of X = 6,00,000

…

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CBSE 2026Set ANNUAL1 markMCQ
$Q. If Cost of goods sold is decreased from ₹ 2,50,000 in the year 2024 to ₹ 2,00,000 in the year 2025, what is the percentage change in cost of goods sold ?$
(a) 25% increase
(b) 25% decrease
(c) 20% increase
(d) 20% decrease
›Reveal solutionSolution

Percentage change in Cost of Goods Sold = (Change ÷ Base-year figure) × 100 = 20% decrease.

In comparative-statement analysis, the percentage change between two years is always computed by taking the earlier (base) year as the denominator:

Percentage Change = [(Current Year Figure − Base Year Figure) ÷ Base Year Figure] × 100

Step 1 — Identify the figures:

Base year (2024) COGS = ₹2,50,000

Current year (2025) COGS = ₹2,00,000

Step 2 — Find the change:

Change = 2,00,000 − 2,50,000 = −₹50,000 (a decrease of ₹50,000)

Step 3 — Express as a percentage of the base year:

Percentage Change = (50,000 ÷ 2,50,000) × 100 = 20% decrease …

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CBSE 2025Set 67/6/11 markMCQ

Q. (a) The statement that shows changes in all items of financial statements in absolute and percentage terms over a period of time, for a firm, or between two firms is called ________. (A) Common Size Statement (B) Comparative Statement (C) Cash Flow Statement (D) Financial Statement

(OR)

(b) ________ ratios indicate the speed at which activities of the business are being performed. (A) Liquidity (B) Solvency (C) Profitability (D) Activity

›Reveal solution

Part (a): (B) Comparative Statement. Part (b): (D) Activity ratios.

Part (a)

A Comparative Statement places financial data for two or more periods side by side and adds columns for the absolute change and the percentage change in each item. This makes it the tool for horizontal / trend analysis, whether comparing one firm across periods or two firms.

Option	Why / why not
(A) Common Size Statement	Expresses each item as a % of a common base (vertical analysis), not the change
(B) Comparative Statement	Shows absolute and % changes — correct
(C) Cash Flow Statement	Reports cash inflows/outflows, not % change of all items

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CBSE 2025Set ANNUAL1 markMCQ
$Q. Which year can be selected for calculating trend percentage ? (A) Current year (B) Previous year (C) Base year (D) None of these$
›Reveal solutionSolution
Trend analysis selects one year as the base, treats its figures as 100, and expresses every other year's figures as a percentage of that base. Hence the answer is (C) Base year.

For Bihar Class-12 (BSEB Inter) commerce candidates, trend (trend percentage) analysis studies the direction of change over several years:

One year (usually the earliest) is chosen as the base year, and its figures are taken as 100.

Each later year's figure is expressed as a percentage of the base-year figure: …
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Q.What is trend analysis ?

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