Base-Year Analysis

AAA

DEFINITION of 'Base-Year Analysis'

1. The analysis of economic trends in relation to a specific base year. Base-year analysis expresses economic measures in base-year prices to eliminate the effects of inflation.

2. The analysis of a company's financial statements by comparing current data with that of a previous year, or base year. Base-year analysis allows for comparison between current performance and historical performance.

INVESTOPEDIA EXPLAINS 'Base-Year Analysis'

1. Base-year analysis is often used when expressing gross domestic product, and is known as real GDP when referred to in this way. By eliminating inflation, the trend of economic growth is more accurate, as price level changes are accounted for.

$$ (Base Year) = $$ (Chosen Year) x Price Index (Base Year) / Price Index (Chosen Year)

2. Base-year analysis of a company's financial statements is important to be able to determine whether a company is growing or shrinking. If, for example, a company is profitable every year, the fact that its revenues are shrinking year-over-year may go unnoticed. By comparing revenues and profits to those of a previous year, a more detailed picture emerges.

RELATED TERMS
  1. Base Year

    The first of a series of years in an economic or financial index. ...
  2. Year Over Year - YOY

    A method of evaluating two or more measured events to compare ...
  3. Base Period

    A particular time period for which data is gathered and used ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  6. Expanded Accounting Equation

    The expanded accounting equation is derived from the accounting ...
Related Articles
  1. Explaining The World Through Macroeconomic ...
    Options & Futures

    Explaining The World Through Macroeconomic ...

  2. What is GDP and why is it so important?
    Investing

    What is GDP and why is it so important?

  3. Is finance an art or a science?
    Active Trading Fundamentals

    Is finance an art or a science?

  4. Economics Basics
    Economics

    Economics Basics

comments powered by Disqus
Hot Definitions
  1. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  2. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  3. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
  6. Pareto Principle

    A principle, named after economist Vilfredo Pareto, that specifies an unequal relationship between inputs and outputs. The ...
Trading Center