why is trend analysis helpful in analyzing ratios
Trend analysis is important when examining a firm's financial statements, because financial analysts can see how company assets have grown over time. In the competitive landscape, the topic of asset growth is often preeminent, especially in industries requiring substantial upfront investments -- such as oil and gas, mining and the military.
By evaluating performance trends, corporate analysts also can tell whether an organization is adeptly managing its money and investing it wisely. There are primary methods to analyze trends while sifting through financial statements. These are ratio analysis, vertical analysis and horizontal analysis.
Although the total dollar basis is the primary means for reporting and analysis, it's not the only one used in most cases.
The more hypothetical earnings per share is also used as an additional tool, as are other methods of analysis. The percentage of change on a quarterly or yearly basis is often used as one way to project potential growth, as is placing a company within the larger context of the specific market or industry in which it's found.
In this latter case, the entire market is also analyzed to discern trends and where the analyst's company fits within those trends.
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