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Percentage Change Financial Statement Analysis

Trend analysis is also called time-series analysis. Trend analysis helps a firm’s financial manager determine how the firm is likely to perform over time, based on trends shown by past history.

Trend analysis uses historical data from the firm’s financial statements, along with forecasted data from the company’s pro forma, or forward-looking, financial statements, to assemble a longer-term view of its financial activity and look for variations over time.

One popular way of doing trend analysis is through financial ratio analysis. If you calculate financial ratios for a business firm, you’ll want to calculate at least two years of ratios to compare side-by-side to provide any meaningful information.

Ratios mean nothing unless you have something to compare them to, such as other years of data. Trend analysis is even more powerful if you have and use several years of financial ratios. Some firms also compare data to average ratios for their industry or competitors.