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Trendlines In Excel

Trendlines In Excel

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Trendlines In Excel

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  1. Trend lines in Charts

  2. Trendlines in charts • A trend line is a straight line connecting multiple points on a chart. • A trend is a movement in a particular direction • The magnitude of the slope of a trend line, or steepness, indicates the strength of the trend. • Trendlines can be used to forecast future !

  3. Creating trendline in excel • Select the graph and right click • Select add Trend line

  4. Trendline types • A window opens with types of trend line to select from 6 Options • Select the default option for trend line – Linear • Click OK

  5. Trendline You can see the trendline now

  6. Formatting trendline • Right click on the trend line to format it. • Select style, color and weight of your choice

  7. Options - Name • Trendline Name • You can give custom name for your trendline such as .. Sales trend… etc.

  8. Options - Forecast • by using this forecast Option you can extend the trend line forward or backward to the number of periods as desired • Here I selected 6 periods (Months - in this case) forward

  9. Options - Forecast • You can Observe that the trendline got extended in to the future by 6 periods • This denotes if this trend continues, the sales of XYZ territory are likely to be like this

  10. Options – Display equation and R2 Value • by clicking “display equation on Chart” and display r-Squared value on chart, you will be able to display them on the graph • Next slide explains them • You can Set Intercept to any value by clicking it and adding value (0 is default). As this Option is not used often in simple trend lines , explanation is beyond the scope of this slide set.

  11. equation • This is the equation generated by excel that holds the mathematical relationship of Sales and months. • This equation will be unique to each data set • This equation can be used to compute sales of any future month • to put it simply , here “y” denotes the sale (which is on Y axis) and x denotes the month • So lets compute 13th month (Jan-2011 in this case) projection, using this equation • y= ((17.311)*13)+296.39 that equals 521.43 • So the likely sales projection for 13th month is 521.43

  12. R squared Value • This is the R_squared Value for this trendline. • This value denotes the reliability of the sales projections. • R squared value will range between 0 and 1 • If the R squared value is 1, then the trend is most predictable and reliable. • The reliability of trendline goes up if the R-squared value is nearest to 1 • Let us see the next example to understand it better.

  13. R squared Value = 1 • Here the R_squared Value is 1. • Just take a look at the sales progress. • With every passing month, this territory is adding $100 to the previous month. • So, going by the trend, you can be almost sure, that the 13th month sales are . • Remember, Trend lines and Forecasts means you are presuming the existing market conditions are not going to change radically.

  14. Six types of trend lines • Linear • Logarithmic • Polynomial • Power • Exponential • Moving Average

  15. Best fit Trendline • We have learnt that if R2 Value is near to 1, the reliability of trendline is better. • So, now we need to use a trend line from the five available trend lines in excel menu to arrive at the most appropriate one to ensure that our forecast is most reliable. • The other trendline left out is Moving average for which ,you will neither get the equation nor the R2 value. • Simplest way to find the best fit trendline is to check every trend line’s R2 Value and use the trendline with highest R2 value ( Which is nearest to 1- out of 5 types)

  16. Rule of thumb to use type of Trendline • 1. Linear trendline : use it if data values are increasing or decreasing at a steady rate. • 2. Logarithmic trendline : Useful when the rate of change in the data increases or decreases quickly and then levels out. • 3. Polynomial trendline : Used when there are data fluctuations like the sales following seasonal trends

  17. Rule of thumb to use type of Trendline • 4. Power trendline : Use with data that has values that increase at specific rate at regular intervals. • 5. Exponential trendline : Use when data values increase or decrease rates that are constantly increasing. • 6. Moving average trendline : Use it when uneven fluctuations are in data values

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