Trend Analysis
The examination of financial data across multiple periods to identify patterns, growth rates, and directional movements that reveal business momentum and long-term trajectories.
Trend Analysis
The examination of financial data across multiple time periods to identify patterns, growth rates, directional movements, and seasonal variations that reveal business momentum and long-term trajectories.
For instance, a trend analysis might show that a company’s revenue grew at 15% annually for three consecutive years before slowing to 8% in the most recent year, while gross margin gradually improved from 35% to 38% over the same period, suggesting pricing power despite slowing revenue growth.
Trend analysis typically involves calculating percentage changes between periods and examining multi-year data in both tabular and graphical formats. Horizontal analysis (comparing the same line item across periods) forms the foundation of trend analysis. This approach helps identify underlying business momentum that might not be apparent from single-period results, distinguish between short-term fluctuations and fundamental shifts, and evaluate management’s progress toward strategic objectives. Trend analysis often provides more valuable insights than absolute numbers or isolated period comparisons, revealing the direction and speed of financial performance changes.