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Chapter 6. Investigation: Verifying the ... > Trends as the Test of Accuracy: Inve...

Trends as the Test of Accuracy: Investigative Techniques

A lot of emphasis is placed on singular trend studies. While specific indicators are valid investigative tools and provide us guidance in making informed decisions, the most effective use of any financial trend has to be in conjunction with other, related trends.

We apply trend analysis as part of the three-part analytical process—identifying core earnings, finding valid trends to watch, and drawing accurate conclusions. In the example of Altria, we showed how an apparently negative trend in revenues was not actually negative at all. The limitation to a single number was too narrow. When studied by segment, we discover that the overall revenue decline was due to a combination of the sale of a major unit (Miller Brewing) plus decreased domestic tobacco sales. In that instance, the preliminary investigation provided satisfactory explanations, drawing the reasonable conclusion that the company's revenue trends were strong and consistent.


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