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. Base Period

    A particular time period for which data is gathered and used ...
  3. Real Gross Domestic Product (GDP)

    An inflation-adjusted measure that reflects the value of all ...
  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 ...
RELATED FAQS
  1. What is GDP and why is it so important to investors?

    The gross domestic product (GDP) is one the primary indicators used to gauge the health of a country's economy. It represents ... Read Full Answer >>
  2. Is finance an art or a science?

    The short answer to this question is "both". Finance, as a field of study and an area of business, definitely has strong ... Read Full Answer >>
  3. What is the average annual return in the utilities sector?

    As of January 2015, the average annual return in the utilities sector for the past 10 years has been approximately 11%, outperforming ... Read Full Answer >>
  4. What is the relationship between nominal GDP and PPP (purchasing power parity)?

    Gross domestic product (GDP) represents an accounting of the total value of all final goods and services produced in a geographic ... Read Full Answer >>
  5. What is the difference between forward p/e and trailing p/e?

    The forward P/E calculates the price-to-earnings ratio that uses projected future earnings. The trailing P/E, which is the ... Read Full Answer >>
  6. How can I use value chain analysis to evaluate investment decisions?

    It is possible for an investor to use value chain analysis to evaluate an investment decision since analysis of a company's ... Read Full Answer >>
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Fundamental Analysis

    Ratio Analysis Tutorial

    If you don't know how to evaluate a company's present performance and its possible future performance, you need to learn how to analyze ratios.
  3. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  4. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  5. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  6. Economics

    What is Productivity?

    Productivity is an economic term describing the relationship between outputs as compared to inputs needed to produce those outputs.
  7. Fundamental Analysis

    Investment Banks: Not a Good Bet Right Now?

    Investment banks might appear safe to investors at the moment, but they're probably more dangerous than advertised.
  8. Entrepreneurship

    The Story Behind Apple's Success

    The marketing helps, and the media and fan frenzy never hurt; but it is the quality of the products that drive Apple's success.
  9. Investing

    Why International Diversification Matters Today

    Given the breadth and diversity of the U.S. economy and market, many U.S. investors feel comfortable keeping their money within U.S. borders.
  10. Economics

    Will The US Economy Rebound In The 2nd Quarter?

    Most investors know that U.S. 1st quarter growth numbers aren’t pretty. Economic statistics have been missing expectations by the largest margin since 2009

You May Also Like

Hot Definitions
  1. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  2. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  3. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  4. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
  5. Subordinated Debt

    A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known ...
  6. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular types of transactions and other events should be reported ...
Trading Center