Base Year

What Is a Base Year?

A base year is the first of a series of years in an economic or financial index. It is normally set to an erratic level of 100. New, cutting-edge base years are periodically acquainted with keep data current in a specific index. Any year can act as a base year, yet analysts ordinarily pick recent years.

Grasping Base Year

A base year is utilized for comparison in the measure of a business activity or economic index. For instance, to track down the rate of inflation somewhere in the range of 2013 and 2018, 2013 is the base year or the primary year in the time set. The base year can likewise depict the starting point from a point of growth or a baseline for working out same-store sales.

Base Year and Growth Rates

Numerous financial ratios are based on growth since analysts need to know how much a specific number changes starting with one period then onto the next. The growth rate equation is (Current Year - Base Year)/Base Year. The past, in ratio analysis, is the base period. Growth analysis is an ordinarily utilized method for portraying company performance, especially for sales. On the off chance that company A develops sales from $100,000 to $140,000, this suggests that the company increased sales by 40% where $100,000 addresses the base year value.

Base Year and Same-store-sales Calculations

Companies are continuously searching for ways of expanding sales. One way that companies develop sales is by opening new stores or branches. New stores have higher growth rates since they are starting from zero, and each new store sale is an incremental sale. Therefore, analysts take a gander at extra factors, for example, how much sales developed on a same-store sales basis. This is likewise alluded to as measuring comparable stores or comp store sales.

In the calculation of comp store sales, the base year addresses the starting point for the number of stores and the amount of sales those stores generated. For example, if company A has 100 stores that sold $100,000 last year, each store sold $10,000. This is the base year. Following this method, the base year decides the base sales and the base number of stores. In the event that company An opens 100 additional stores in the next year, these stores generate $50,000, however same-store sales decline in value by 10%, from $100,000 to $90,000. The company can report 40% growth in sales from $100,000 to $140,000, however sagacious analysts are more keen on the 10% decline in same-store sales.