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Reply to this post agree or disagree

Over the course of the business cycle, sales and profitability may expand and contract, and ratio analysis for any one year may not present an accurate picture of the firm. Therefore, we look at the trend analysis of performance over a number of years.

Do you think that trend analysis is beneficial in analyzing ratios? What additional factors would you consider to be important in trend analysis?

Over the course of the business cycle, sales and profitability may expand and contract, and ratio analysis for any one year may not present an accurate picture of the firm. Therefore, we look at the trend analysis of performance over a number of years.

Do you think that trend analysis is beneficial in analyzing ratios? What additional factors would you consider to be important in trend analysis?

Trend analysis refers to an analysis of performance that is made over a number of years in order to ascertain significant patterns (Block, p.65). I think trend analysis is beneficial in analyzing ratios because they can complement each other to look at patterns over the years and from there one can make a prediction of future trends.

However, trends alone also don't "represent a complete picture" (Block, P.65). Block, Hirt, and Danielson suggest comparing companies in the same industry. By doing this, one can see how our company is doing in the market with other companies who do similar business.

Reference:

Block, S. B., Hirt, G. A., & Danielsen, B. R. (2013). Foundations of Financial Management (15th ed.). New York, NY: McGraw-Hill Education.