Trend analysis - Definition, When to use it?, advantages, Limitations, How to prepare it?, Assumptions,

2. DEFINITION:
An aspect if technical analysis that
tries to predict the future movement of a
stock based on past data. Trend analysis
is based on the idea that what has
happened in the past gives traders an idea
of what will happen in the future.

3. When one wants to use historical data to
predict future.
When one wants to compare the current
values with the past values.

4. Trend shows the direction of the change.
Trend are easy to calculate, interpret and
understand.
It is a quick method of analysis.
It is more accurate.
It reveals potentially fruitful areas of audit
investigation.
It is being readily accepted due to its
widespread use.

5. Choice of base year.
No. of years.
Different accounting policies.
It provides little insight into the root causes
of variation.
It is being heavily influenced by the choice
of the base fiscal period.

6. It is calculated in percentage.
Draw the format.
Assign the particulars and amount
respectively.
Take 100% in base years % column.
To find out the further years % value.
Then apply the formula:
current year X 100
Base year

7. The base year selected should be normal
and be truly representative of all years
involved in the analysis.
The financial statements used for the
analysis must have been prepared
applying consistent accounting principles
and practices.

8.  The figures of the various accounting
statements considered for the analysis should
be adjusted for any price level changes, as
compared in base year, before computing
trend percentages.
 Trend percentages should be studied along
with the absolute figures on which they are
based. This will enable us to know whether
the change is significant or not.