Question

6) What are trend percentages and how are they calculated? What pitfalls must financial statement users avoid when preparing trend percentages?

Answer 1

Method of analyzing financial information obtained over an extended period generally 3 years to 5 years by choosing a baseline period (usually the earliest year) and stating the data associated with subsequent periods as a percentage of that period.
Trend is calculated by dividing the amount in the second year by the amount in first year and multiply by 100 to calculate the trend percentage for the second year

In trend percentage changes as percentages is usually straightforward as long as the amount in the base year or period is positive—that is, not zero or negative.

Proper analysis does not stop with the calculation of increases and decreases in amounts or percentages over several years. Such changes generally indicate areas worthy of further investigation and are merely clues that may lead to significant findings.