Certified Government Financial Manager (CGFM) Practice Exam

Trend analysis is a method used in financial management that involves the examination of historical data to identify patterns or trends over time. This process allows financial managers to observe how various financial indicators have changed in the past, enabling them to draw conclusions and make informed decisions about future budgets. By recognizing trends, such as increasing revenues or escalating costs, managers can project future financial performance, making it a crucial tool for effective forecasting and budgeting.

While historical analysis shares some similarities with trend analysis in that it involves looking at past performance, it does not specifically focus on identifying trends over time. Variance analysis concentrates on the differences between expected and actual financial performance rather than broadly analyzing past performance for budgeting insights. Predictive analysis utilizes more complex statistical models and forecasts to estimate future outcomes, which is different from simply analyzing historical trends for budgeting purposes. Therefore, trend analysis is clearly aligned with the practice of using past performance to inform future financial planning, making it the most appropriate choice.