Base year

In the calculation of an index, the base year is the year with which the values from other years are compared. The index value of the base year is conventionally set to equal 100. Generally, indices in short-term statistics (STS) are calculated monthly or quarterly. In these cases, the average monthly value for an indicator (e.g., industrial production) or the average quarterly value (e.g., output prices of other services) is set to equal 100. For the economic interpretation of statistical results, it is convenient that the base year can be considered to be a "normal" or "average" year, i.e., a year without significant economic disturbances or structural changes. For practical reasons, however, and to improve international comparison, the European business statistics regulation specifies that the base year in STS is changed every five years and that the years should be the years ending with "0" or "5". The rates of change of the index values before and after the rebasing should be the same. However, statistical institutes often use the opportunity of base year changes to introduce updates and methodological changes, which also affect the rates of change[Base year - Statistics Explained]. A base year is the first of a series of years in an economic or financial index. Base years are also used to measure business activity, such as growth in sales from one period to the next. A base year can be chosen based on the analysis being performed. A base year is used for comparison in the measure of business activity or economic or financial index. For example, to find the inflation rate between 2016 and 2021, 2016 is the base year or the first year in the time set. The base year can also describe the starting point from a growth point or a baseline for calculating same-store sales. Many financial ratios are based on growth because analysts want to know how much a particular number changes from one period to 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 commonly used to describe company performance, particularly for sales. If company A grows sales from $100,000 to $140,000, the company increases sales by 40%, where $100,000 represents the base year value[Glossary].

Sources:

What Is a Base Year. How It’s Used in Analysis and Example. Investopedia. Retrieved from: https://www.investopedia.com/terms/b/base-year.asp

Base year - Statistics Explained. Glossary. Retrieved from: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Glossary:Base_year