DEFINITION of 'Annual Basis'

The term annual basis has multiple applications in finance. In each sense, it refers to an observed figure over the course of the year. It can also refer to something that happens every year.

Annual basis can refer to 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. Annual basis can also refer to the cost of something over the course of a year.

BREAKING DOWN 'Annual Basis'

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.

Example of Annual Basis

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.

  1. Annualize

    To annualize is to convert a short-term calculation or rate into ...
  2. Annualized Total Return

    Annualized total return gives the yearly return of a fund calculated ...
  3. Annual Report

    An annual report is a publication that public corporations must ...
  4. Annualized Rate

    An annualized rate is a rate of return for a given period that ...
  5. Basis Price

    The basis price is the price of a security quoted in terms of ...
  6. Average Cost Basis Method

    The average cost basis method is a system of calculating the ...
Related Articles
  1. Trading

    A Common Base for Understanding Changes in Value

    A discussion of basis points as well as basis point calculations using Excel.
  2. Personal Finance

    7 Things Widows Wished They Knew About Finances

    Women who left finances up to their spouses wish they knew the following before they became widows.
  3. Investing

    How To Efficiently Read An Annual Report

    Learn how to read between the lines and decipher the actual condition of a company.
  4. Investing

    Amazon Launches AmazonGo, the Future Of Grocery Stores

    The store, which will open in Seattle in 2017, uses technology from self-driving cars.
  5. Personal Finance

    Tips to Teach Your Daughter How to Manage Finances

    The earlier your daughter learns how to properly handle money, the better off financially she will be in life.
  6. Investing

    What Will Trigger the Next Stock Market Crash

    A growing mountain of consumer debt may produce a landslide that buries stocks.
  7. Small Business

    If America Was A Person

    So much has changed in such a short period of time the question is what, or who, exactly, is America today?
  8. Investing

    How to Evaluate Stock Performance

    Learn how to evaluate stock performance. While what you look for in a stock could be different from another person, the way you analyze performance is the same.
  1. What is a good annual return for a mutual fund?

    Before investing in mutual funds, it's important to understand individual goals for the investment over a specified time ... Read Answer >>
Trading Center