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What is a Base Period?

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  • Written By: Mary McMahon
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 September 2016
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A base period or reference period is a specific period of time which is used in the comparison of financial data. Typically, the base period used will be disclosed in studies of this data, so that people who read these studies have a frame of reference. The time span of a base period varies widely; it may represent an average of years, for example, or it may be a period of only a few months. Since comparison is an important measure of economic growth and health, base periods are used extensively in things like annual reports.

The idea of a base period is that it acts as a benchmark for a frame of reference. For example, a company might issue an annual report comparing its current income to its income in the base year 1995. In the annual report, the company would discuss reasons for changes in growth, it would presumably talk about predictions for the future, and a discussion of ways to promote growth would also be included.

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Economic analysts also use base periods to look at fluctuations in the economy. Comparing economic data from several time periods can provide interesting revelations about financial changes and trends such as inflation. Base periods are also used to find periods of peak consumer demand; many people, for example, use quarterly financial data as a base period. Publicly traded companies release economic data about their quarterly performance on a regular basis so that stockholders can make decisions about their shares.

The fourth quarter is often an interesting base period to look at, since it encompasses the holiday season, when consumer spending often rises. If a company experiences a downturn during this period, it can be a bad sign. Stockholders might also compare fourth quarter performance from various years to see if a company is expanding and improving, or holding steady. In many cases, a base period analysis will include an adjustment for inflation so that the complete and accurate picture can be generated.

The term “base period” is also used in claims for unemployment benefits, although it is used somewhat differently. In this context, a base period is the first four of the previous five quarters. These four quarters are used to create an estimate of appropriate benefits. The base period in unemployment is dated from the time of the claim, not from the time that the claimant became unemployed. Therefore, it is important to file claims in a timely manner to ensure the maximum possible benefits.

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anon284116
Post 4

How do I calculate base period for years?

miriam98
Post 3

@SkyWhisperer - I think your experience should be a lesson for anyone wanting to get into the stock market. I also think that nobody should ever use the late 1990s or early 2000 as the base period for comparison in stock investing.

The Internet stock market bubble was anything but ordinary. Actually, prudent investors would have looked at other booms in the market for their base period, spotting immediate and stark contrasts between those periods and the wild, speculative bubble that was taking place before their eyes.

These investors would have realized that there was something terribly unusual about the boom that they were in, and perhaps got out before the bubble burst. Many did not, however, as we famously found out.

nony
Post 2

@SkyWhisperer - Wow, that must have hurt. I can’t relate to stock market charts, but I can relate to a base period for unemployment benefits.

That’s because I was laid from a job a couple of years ago, a job that I had been at for eight years. Fortunately I found a new job within a few months but I remember all the paperwork I had to fill out when filing for unemployment.

They said they were going to use basically the last year of my employment to determine my benefits. I don’t know that it made all that much difference, however; the sum they eventually gave me was paltry compared to what I was making.

Fortunately I had some severance coming to me, but I guess the unemployment benefits helped a little too.

SkyWhisperer
Post 1

I admit it – I’m a sucker for charts, all kinds of charts. However, I prefer the basic line graphs, especially when looking at stock market investments and overall economic trends.

The real gurus warn you about basing your investment decisions strictly off of charts. That was my first investment mistake. I watched this company whose stock price continued to rise for several quarters.

Finally I was ready to buy, when I was convinced that the sky was the limit. I was going to get in at the third quarter, because this was when they released new products which would normally result in an onslaught of sales pushing their stock price higher. That was my base period.

I bought right before the quarterly report came out (dumb me) and to my shock, they reported that they had experienced competition from a major rival, and this squeezed their profits. My stock tanked like a rock.

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