Hey Lykkers! Ever looked at a company's latest financial report and thought, "Wow, they made $10 million profit this year!" But here's the real question: is that actually good news?

What if I told you that same company made $50 million last year, and $80 million the year before? Suddenly that $10 million profit looks like a five-alarm fire! This is why looking at a single snapshot in time can be dangerously misleading.

Today, we're learning to watch the whole movie, not just one frame. Welcome to the power of trend analysis.

A single year's financial data is like judging an athlete by one photo. They might look strong in the picture, but are they improving or declining? You need to see their performance over multiple seasons to know the real story.

As the renowned economist John Maynard Keynes aptly noted, "The difficulty lies not so much in developing new ideas as in escaping from old ones." (The General Theory of Employment, Interest, and Money, 1935). This is especially true in finance, where we must escape the habit of looking at data in isolation.

By examining trends over 3-5 years, we move beyond simple numbers and start reading the company's actual story—its momentum, its challenges, and its potential future.

The Three Key Trends You Must Watch

You don't need to be a CPA to spot these crucial patterns. Just track these three simple lines on a chart:

- The Revenue Trajectory: Is the top line consistently moving up? Steady revenue growth is the first sign of a healthy, expanding company. If revenue is flat or declining for several years, it's a major red flag that the company's products or services are losing relevance.

- The Profit Margin Path: Are they making more or less on each dollar of sales? A company can have rising revenue but falling profits if their costs are out of control. Tracking the net profit margin over time tells you if the business is becoming more or less efficient.

- The Cash Flow Consistency: Profit is an opinion, but cash is a fact. A company can show accounting profits while its actual bank account drains. Consistent and growing operating cash flow is the lifeblood of any business—it pays salaries, funds new projects, and allows it to survive tough times.

A Simple Framework: The Green, Yellow, and Red Flags

Let's make this practical. When you look at a 5-year trend, here's what to look for:

- Green Flag (Healthy): All three lines (Revenue, Profit Margin, Cash Flow) are steadily sloping upward. This is what you want to see!

- Yellow Flag (Caution): One of the three is weakening. For example, revenue is growing, but profit margins are getting thinner. This signals potential trouble and requires deeper investigation.

- Red Flag (Danger): Two or more trends are declining. This often means the company is in a downward spiral that is very difficult to reverse.

Your Action Plan: How to Start Today

You don't need expensive software. For any public company, you can find its annual reports (10-K filings) online for free. Create a simple spreadsheet and input the last five years of:

- Total Revenue

- Net Income

- Operating Cash Flow

Plot the numbers on a simple line chart. Your eyes will immediately be drawn to the direction of the lines. That direction is the company's true trajectory.

Legendary investor Warren Buffett, whose strategy relies heavily on understanding business trends, advises: "If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes." (Berkshire Hathaway Annual Meeting, 1996). This philosophy forces you to think about the long-term trend, not the next quarter's results.

So, Lykkers, the next time you evaluate a company—whether for investment or partnership—don't just ask "How are you doing?" Ask, "How have you been doing?" The trend is not just your friend; it's your most truthful advisor.

Now go pull up some charts and see what stories they tell!