Shortcomings of Trend Analysis

• Since time series data are influenced by inflationary factors, it becomes difficult to segregate the inflationary growth by trend analysis.

• Selection of base for trend analysis is a critical point. A base year should be a normal business year.

• Another problem with trend analysis is that the past may not be a useful measure of adequacy.

• Since trends reverse at times, such projections must be made with care.

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