Trend Analysis

Trend analysis studies the movement of an item (or a few key items) over a run of several years, so that its long-run direction becomes clear. One year — usually the earliest in the series — is chosen as the base year and set equal to 100, and the figure for every later year is expressed as a percentage of the base-year figure. These percentages are called trend percentages (or trend ratios).

The formula for each year is:

Trend percentage = (Figure of the given year ÷ Figure of the base year) × 100.

The base year itself is therefore always 100. A trend percentage above 100 means the item has grown beyond its base-year level; below 100 means it has fallen. Reading the whole series together shows whether an item is rising steadily, falling steadily, or fluctuating — and, importantly, whether related items are moving together (for example, whether profit is keeping pace with sales).

Worked Example 3 — Trend percentages

From the following data, compute the trend percentages taking 2020-21 as the base year.

Solution. Each figure is divided by its 2020-21 base figure and multiplied by 100.

Sample computations: Revenue 2021-22 = 5,00,000 ÷ 4,00,000 × 100 = 125; Revenue 2023-24 = 7,00,000 ÷ 4,00,000 × 100 = 175. Net profit 2021-22 = 60,000 ÷ 40,000 × 100 = 150; Net profit 2023-24 = 84,000 ÷ 40,000 × 100 = 210.

Interpretation. Both revenue and net profit rose steadily over the four years, but net profit grew faster than revenue — by 2023-24 revenue stood at 175% of its base level while net profit had reached 210%. This tells us the firm not only grew but became more profitable per rupee of sales, because profit outpaced turnover. Had the profit trend line risen more slowly than the revenue line, it would have warned that costs were rising faster than sales — the opposite conclusion. …