EDUCBA

EDUCBA

MENUMENU
  • Explore
    • Lifetime Membership
    • All in One Bundles
    • Fresh Entries
    • Finance
    • Data Science
    • Programming and Dev
    • Excel
    • Marketing
    • HR
    • PDP
    • VFX and Design
    • Project Management
    • Exam Prep
    • All Courses
  • Blog
  • Enterprise
  • Free Courses
  • Login
Home Finance Finance Resources Finance Formula Trend Analysis Formula

Trend Analysis Formula

Madhuri Thakur
Article byMadhuri Thakur

Updated July 24, 2023

Trend Analysis Formula

Trend Analysis Formula (Table of Contents)
  • Formula
  • Examples
  • Calculator

What is the Trend Analysis Formula?

The term “Trend Analysis” refers to one of the most useful analytical tools employed for financial analysis of statements such as income statements, balance sheets, and cash flow statements.

In other words, trend analysis compares the movement in each line item across time periods in order to draw actionable insights. It basically indicates the change either in terms of amount or as a percentage change year over year (Y-o-Y).

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

The formula for trend analysis (change in amount) can be derived by subtracting the base year amount from the current year amount. Mathematically, it is represented as,

Formula –

Change in Amount = Current Year Amount – Base Year Amount

The formula for trend analysis (percentage change) can be derived by dividing the difference between the current year amount and the base year amount by the base year amount. Mathematically, it is represented as,

Formula –

Percentage Change = [(Current Year Amount – Base Year Amount) / Base Year Amount]

Example of Trend Analysis Formula (With Excel Template)

Let’s take an example to understand the calculation of the Trend Analysis Formula in a better manner.

You can download this Trend Analysis Formula Excel Template here – Trend Analysis Formula Excel Template

Trend Analysis Formula – Example #1

Let us take the example of a company DFG Inc. which is engaged in the manufacturing of customized machine parts. The following income statement information is available for the last five years:

Company DFG Inc

Solution:

Trend Analysis is calculated using the change in amount formula given below.

Change in Amount = Current Year Amount – Base Year Amount

Trend Analysis Formula - 1.2

The year 2015 is calculated using the above-given formula.

Trend Analysis Formula - 1.3

Similarly, Calculated the year 2016, 2017, 2018 by the given formula.

Change in Amount

Trend Analysis is calculated using the percentage change formula given below.

Percentage Change = [(Current Year Amount – Base Year Amount) / Base Year Amount]

Trend Analysis Formula - 1.6

The year 2015 is calculated using the above-given formula.

Trend Analysis Formula - 1.7

Similarly, Calculated the year 2016, 2017, 2018 by the given formula.

Percentage Change

In the above tables, it can be seen that:

  • The company witnessed deterioration in its financials in the year 2015 and 2016. However, since then, the company’s financials have been on an uptrend for the last two years.
  • The company’s profitability experienced the highest growth in the year 2018, which may indicate that it has been able to improve its operational efficiency. Although, the growth in net income can also be due to some non-operating income.
  • Overall, the company is trending up, which may be sustainable in the near term if the market remains favorable.

Below is the graphical representation of the trend in each line item.

Trend Analysis Formula - 1.9

Trend Analysis Formula – Example #2

Let us take the example of Apple Inc.’s income statement for the year 2018 to illustrate the concept of trend analysis. The following three years’ information has been extracted from the income statement:

example of Apple Inc.’s

Solution:

Trend Analysis is calculated using the change in amount formula given below.

Change in Amount = Current Year Amount – Base Year Amount

Change in Amount

The year 2017 is calculated using the above-given formula.

Trend Analysis Formula - 2.3

Similarly, Calculated the year 2018 by the given formula.

Trend Analysis Formula - 2.4

Trend Analysis is calculated using the percentage change formula given below.

Percentage Change = [(Current Year Amount – Base Year Amount) / Base Year Amount]

Trend Analysis Formula - 2.5

The year 2017 is calculated using the above-given formula.

Trend Analysis Formula - 2.6

Similarly, Calculated the year 2018 by the given formula.

Percentage Change

In the above tables, it can be seen that:

  • Although the company has grown in the last two years, it has witnessed significant growth in the year 2018.
  • The profitability has also moved in tandem with the revenue, which is always a good sign as it indicates better operational control.
  • The net income in the year 2018 has witnessed relatively higher growth due to lower provision for taxes.

Below is the graphical representation of the trend in each line item.

Trend Analysis Formula - 2.8

Source Link: Apple Inc. Balance Sheet

Explanation

The Trend Analysis Formula can be calculated by using the following steps:

Step 1: Firstly, decide the base year and then note down the subject line item’s value in the base year.

Step 2: Next, note down the value of the line item in the current year.

Step 3: Now, the formula for trend analysis in terms of change in amount can be derived by subtracting the base year amount (step 1) from the current year amount (step 2), as shown below.

Change in Amount = Current Year Amount – Base Year Amount

Step 4: On the other hand, the formula for trend analysis in terms of percentage change can be derived by dividing the change in amount (step 3) by the base year amount (step 1), as shown below.

Percentage Change = [(Current Year Amount – Base Year Amount) / Base Year Amount]

Relevance and Use of Trend Analysis Formula

It is important to understand the concept of trend analysis because it helps in the assessment of future movement based on historical figures. It is also helpful in identifying any stark deviation, which can indicate irregularity in financial reporting or business downtrend. A market is said to be on the uptrend if the asset prices move in an upward direction, i.e. keep increasing over a certain period of time. On the other hand, a downtrend market indicates that asset prices are moving in a downward direction, i.e. decreasing.

Trend Analysis Formula Calculator

You can use the following Calculator:

Current Year Amount
Base Year Amount
Change in Amount
 

Change in Amount = Current Year Amount – Base Year Amount
= 0 – 0
= 0

Recommended Articles

This is a guide to the Trend Analysis Formula. Here we discuss how to calculate it along with practical examples. We also provide a calculator with a downloadable excel template. You may also look at the following articles to learn more –

  1. Example of Percentage Change
  2. Formula for Moving Average
  3. How to Calculate Present Value
  4. Calculation for Sales Revenue
  5. Complete Guide to Balance Sheet Ratios
ADVERTISEMENT
All in One Excel VBA Bundle
500+ Hours of HD Videos
15 Learning Paths
120+ Courses
Verifiable Certificate of Completion
Lifetime Access
ADVERTISEMENT
Financial Analyst Masters Training Program
2000+ Hours of HD Videos
43 Learning Paths
550+ Courses
Verifiable Certificate of Completion
Lifetime Access
ADVERTISEMENT
All in One Data Science Bundle
2000+ Hour of HD Videos
80 Learning Paths
400+ Courses
Verifiable Certificate of Completion
Lifetime Access
ADVERTISEMENT
All in One Software Development Bundle
5000+ Hours of HD Videos
149 Learning Paths
1050+ Courses
Verifiable Certificate of Completion
Lifetime Access
Primary Sidebar
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

ISO 10004:2018 & ISO 9001:2015 Certified

© 2023 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

EDUCBA

Download Trend Analysis Formula Excel Template

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

By continuing above step, you agree to our Terms of Use and Privacy Policy.
*Please provide your correct email id. Login details for this Free course will be emailed to you

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you
EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA

डाउनलोड Trend Analysis Formula Excel Template

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

🚀 Extended Cyber Monday Price Drop! All in One Universal Bundle (3700+ Courses) @ 🎁 90% OFF - Ends in ENROLL NOW