Scribd
Upload
35 views4 pages

Lesson 2.1 Trend Analysis Vertical Analysis

The document discusses financial analysis techniques, focusing on trend analysis and vertical analysis. Trend analysis predicts future movements based on historical data, identifying uptrends, downtrends, and sideways trends. Vertical analysis presents financial statement items as percentages of a base figure, facilitating comparisons and insights into company performance.

Uploaded by

Raffy Sillar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
35 views4 pages

Lesson 2.1 Trend Analysis Vertical Analysis

The document discusses financial analysis techniques, focusing on trend analysis and vertical analysis. Trend analysis predicts future movements based on historical data, identifying uptrends, downtrends, and sideways trends. Vertical analysis presents financial statement items as percentages of a base figure, facilitating comparisons and insights into company performance.

Uploaded by

Raffy Sillar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Financial Analysis and Reporting

dxLesson 2 - Basics, Purpose and Information needed for Financial Analysis

Trend Analysis - Trend Analysis is a statistical tool that helps to determine the future movements of a
variable
on the basis of its historical trends. In simple words, it predicts future behavior on the basis of past data.
There is no specific amount of time for a movement to become a trend. However, the longer the
movement, the better it is.

- Trend analysis is similar to horizontal analysis, but instead of percentage change it uses index
number. Where allother years are represented as percentage of the base year.

Formula of Index Number:


Index number = (Index year dollar amount / Base year dollar amount) x 100

Types of Trend:
Uptrend
- It is the trend when financial markets and assets move in upward directions, resulting in an
increase in the price. It is usually the time of boom in the economy, where overall sentiments are
favorable.

Downtrend
- In the downtrend or the bear market, the economy, financial markets, and asset prices move in a
downward direction. It is the time when companies shrink operations, and overall investor
sentiment is not favorable.

Sideways / horizontal Trend


-In this, the asset prices or the broader economy-level are not moving in any direction, rather are
moving sideways. This means moving up for some time and then down on the same level. It is a
risky movement as investors are unsure of what will happen to their investments.
Financial Analysis and Reporting

NOTE:
Trend analysis is a technique used commonly to predict future stock price movements based on
recently observed trend data. Trend analysis is helpful because moving with trends, and not
against them, will lead to profit for an investor. It is based on the idea that what has happened in
the past gives traders an idea of what will happen in the future.

Vertical analysis:
- method of financial statement analysis in which each line item is listed as a percentage of a
base figure within the statement. Thus, line items on an income statement can be stated as a
percentage of gross sales, while line items on a balance sheet can be stated as a percentage
of total assets or total liabilities, and vertical analysis of a cash flow statement shows each
cash inflow or outflow as a percentage of the total cash inflows.

Example of Vertical Analysis:


Financial Analysis and Reporting

Common size financial statement


- A common size financial statement displays entries as a percentage of a common base figure
rather than as absolute numerical figures. It makes it easier to determine what drives a
company’s profit and to compare the company to similar businesses.
- A common size financial statement displays entries as a percentage of a common base figure
rather than as absolute numerical figures.
Financial Analysis and Reporting

You might also like