Annual Basis

AAA

DEFINITION of 'Annual Basis'

The return earned by an investment over the course of a year. Projections containing the phrase "on an annual basis" have usually used less than a year's worth of data to project a full year's worth of returns. For example, an investment might have returned 1.5% in one month. By multiplying this return by 12, an 18% annual basis is the result. The shorter the period of data used to determine an annual return, the less accurate that projection is likely to be. Statements about what an investment will return on an annual basis are always estimates.

BREAKING DOWN 'Annual Basis'

Annual basis can also refer to the cost of something over the course of a year. For example, if Angela wanted to establish a household budget for the year and it was April 1, she could look at how much money her family had spent on groceries in January, February and March to estimate what her family's grocery costs would be on an annual basis. She sees that she spent $300 in January, $250 in February and $350 in March, for a total of $900. Since 25% of the year has passed, she multiplies $900 x 4 to determine that groceries should cost her family around $3,600 on an annual basis.

RELATED TERMS
  1. Compound Annual Growth Rate - CAGR

    The Compound Annual Growth Rate (CAGR) is the mean annual growth ...
  2. Annualized Total Return

    The average amount of money earned by an investment each year ...
  3. Basis

    1. The variation between the spot price of a deliverable commodity ...
  4. Annual Turnover

    The percentage rate at which a mutual fund or exchange-traded ...
  5. Annualized Rate

    A rate of return for a given period that is less than one year, ...
  6. Semiannual

    A semiannual event happens twice a year, typically every six ...
Related Articles
  1. Fundamental Analysis

    How To Calculate Your Investment Return

    How much are your investments actually returning? Find out why the method of calculation matters.
  2. Investing

    Measure Your Portfolio's Performance

    Learn three ratios that will help you evaluate your investment returns.
  3. Fundamental Analysis

    Gauge Portfolio Performance By Measuring Returns

    Calculate returns frequently and accurately to ensure that you're meeting your investing goals.
  4. Investing

    How To Evaluate Pension Risk By Analyzing Annual Costs

    Learn how to assess whether a company's pension plan is posing more risks than what the footnotes indicate.
  5. Investing Basics

    What Happens in a Haircut?

    One meaning of haircut is the difference between prices at which a market maker can buy and sell a security.
  6. Investing Basics

    Explaining Delivery Versus Payment

    Delivery versus payment is a common procedure for settling the exchange of securities.
  7. Investing Basics

    What is Convertible Preferred Stock?

    Convertible preferred stock is preferred stock that can be converted into common stock as of a predetermined date at a specified ratio.
  8. Investing Basics

    What Does Clawback Mean?

    A clawback occurs when money or benefits that have been distributed are taken back because of unforeseen or unusual circumstances.
  9. Investing Basics

    What is the Theory of Backwardation?

    Backwardation occurs when the futures price of a commodity is lower than its market price today.
  10. Fundamental Analysis

    Examining Mexico's Trillion-Dollar GDP

    Examining the gross domestic product growth and composition of Mexico, the second largest economy in Latin America
RELATED FAQS
  1. How do dividends affect the balance sheet?

    Dividends paid in cash affect a company's balance sheet by decreasing the company's cash account on the asset side and decreasing ... Read Full Answer >>
  2. Are dividends considered an expense?

    Cash or stock dividends distributed to shareholders are not considered an expense on a company's income statement. Stock ... Read Full Answer >>
  3. Do dividends go on the balance sheet?

    The only account recorded on the balance sheet, when dividends are declared and before they are paid out to a company's shareholders, ... Read Full Answer >>
  4. Where do penny stocks trade?

    Generally, penny stocks are traded through the use of the Over the Counter Bulletin Board (OTCBB) and through pink sheets. ... Read Full Answer >>
  5. Where can I buy penny stocks?

    Some penny stocks, those using the definition of trading for less than $5 per share, are traded on regular exchanges such ... Read Full Answer >>
  6. How does the stock market react to changes in the Federal Funds Rate?

    The stock market reacts to changes in the federal funds rate in various ways depending on where it is in the business cycle. ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!