Low base effect

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Low base effect in business and economics is the tendency of a small absolute change from a low initial amount to be translated into a large percentage change.[1][2]

In the following example, focusing solely on the 33.3% growth of Company B in year 5 may give a misleading indication of the company's relative performance versus Company A.

  Initial Year 1 Year 2 Year 3 Year 4 Year 5
Company A Value 100 120 140 160 180 200
Change 20 20 20 20 20
%Growth 20 16.7 14.3 12.5 11.1
Company B Value 100 90 80 70 60 80
Change -10 -10 -10 -10 20
%Growth -10 -11.1 -12.5 -14.3 33.3

References[edit]

  1. ^ Vaughan, Mark D. and Dusan Stojanovic. (July 1996). Loan Quality In The Eighth District: Worth A Closer Look. Retrieved 2010-11-07.
  2. ^ Parikh, Parag. (2009). Value Investing And Behavioral Finance. New Delhi: Tata McGraw-Hill. p. 120. ISBN 978-0-07-007763-8.