What are the precautions to be taken during trend analysis?

During the calculation of trend analysis the following precautions should be taken:

i)             There should be consistency in the principles and practices followed by the organizations through out the period for which analysis is made.

ii)           The base year should be normal i.e. representative of the items shown in the statement.

iii)          It should be calculated only for the items which are having logical relationship with each other.

iv)         It should be studied after considering the absolute figures on which they are based.

v)           Figures of the current year should be adjusted in the light of price level changes as compared to the base year before calculating trend analysis.

vi)         The changes in financial data can understood clearly when the % of change interpreted concurrently with the absolute change.

vii)        The changes in incomes should always be studied in the light of changes in expect items.

viii)       Changes should be interpreted with some reservations.

ix)         The interpretation of the statements should be done in the light of all possible factors which might have brought about such changes.

Thus the above precautions have to be taken during the calculations of trend analysis.