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.
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.
