Trend Analysis :

Under trend analysis, methodology can be used:

(a) The items, for which trend is required to be seen, are arranged in horizontal form and percentage increase (decrease) from the previous year’s figure is indicated below it. Generally, this is used to analysis the trends of sales, operating profit, PBT, PAT etc. from P& L account. Similarly, the balance sheets, arranged in horizontal order give the trends of increase or decrease of various items.

(b) Common size statements are prepared to express the relationship of various items to one item in percentage terms. For example, consumption of raw materials is expressed as a percentage of sales for different years and comparison of these figures gives indication of trend of operating efficiency.

The use of common size statements can make comparisons of business enterprises of different sizes much more meaningful since the numbers are brought to common base, i.e. per cent. Such statement allows an analyst to compare the operating and financing characteristics of two companies of different sizes in the same industry. To quickly understand a good or negative trend the chart below should be of good help:-

Sl. No.	Trend	Positive	Negative
1	Increase in PBT	Yes	–
2	Decrease in PBT	–	Yes
3	Increase in PAT	Yes	–
4	Decrease in PAT	–	Yes
5	PBIT increase	Yes	–
6	PBIT decrease	–	Yes
7	Net Worth increase	Yes	–
8	Net Worth decrease	–	Yes