Base-Year Analysis

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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. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  3. Base Period

    A particular time period for which data is gathered and used ...
  4. Year Over Year - YOY

    A method of evaluating two or more measured events to compare ...
  5. Inflation

    The rate at which the general level of prices for goods and services ...
  6. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
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