Define Base Year

 

What is the definition of a base year?

Of an economic or financial index, the base year is the first in a series of years. It's usually set to a random value of 100. To keep data current in a given index, new, up-to-date base years are added on a regular basis. Any year can be used as a base year, however most experts prefer recent years.

Identifying the Base Year

In the measurement of a commercial activity or an economic index, a base year is used for comparison. For example, to calculate the inflation rate between 2013 and 2018, the base year, or the first year in the time period, is 2013. The base year can also refer to the beginning point for calculating same-store sales from a point of growth or a baseline.

Growth Rates and Base Year

Because analysts seek to know how much a statistic changes from one period to the next, many financial measures are based on growth. (Current Year - Base Year) / Base Year is the growth rate calculation. The basis period in ratio analysis is the past. Growth analysis is a frequent technique to describe a company's success, especially sales performance. If firm A increases sales from $100,000 to $140,000, this indicates a 40% increase in sales, with $100,000 being the base year value.

Calculations for the Base Year and Same-Store Sales

Companies are constantly seeking for new methods to boost sales. Opening new stores or branches is one strategy for businesses to increase sales. The growth rates of new stores are greater.

since they're beginning from scratch, and each new shop sale is a step forward As a result, analysts consider other indicators such as how much revenue increased on a same-store basis. This is also known as comparable store sales or comp store sales.

The base year is used to calculate comp store sales since it is the beginning point for the number of stores and the amount of sales they generated. For example, each of Company A's 100 locations sold $10,000 last year, resulting in a total of $100,000 in sales. This is the starting point. The base year determines the base sales and the base year determines the base sales using this technique.

The initial number of shops If firm A opens 100 additional stores the next year, revenues will increase by $50,000, but same-store sales will drop by 10%, from $100,000 to $90,000. Although the corporation may boast a 40% increase in sales from $100,000 to $140,000, astute analysts are more concerned with the 10% drop in same-store sales.