Annual Basis

Annual Basis has many different collocations. In every meaning it assigns to an observed figure over the course of the year. It can be also related to:

• the situations that happens every year,
• an investment throughout the year,
• cost of something during the year.

Predictions that contain the phrase "on an annual basis" mean that there is used a data of less than one year time to show the worth of returns of the whole year. In some companies owners offer salary on annual basis (Bangs D. H., 2010).

How to understand Annual Basis?

Nowadays people are used to the thing that returns or cash flows are converted on an annual basis. Investors and finance directors evidence their actions on an annual return basis. Annual return is made annually to the Registrar of Companies in correspondence with the Companies Acts. It contains details of the share capital and assets of the directors. This return has to be done until the 14th day after the date of the company's annual general meeting. In turn, the annual general meeting (AGM) is a meeting of company's shareholders which must be organized every year at intervals of not more than 15 months. The first meeting should be held in 18 months after forming the company. Most of them are formal and brief. Shareholders must be informed about the AGM 21 days before the date of the meeting. AGM contains the presentation of the audited accounts, the appointment of directors and auditors, the fixing of their remuneration, and recommendations for the payment of dividents. In annual yields are also converted volatility, loans and interest payments on deposits (Cambridge Business English Dictionary, 2011, p. 26).

Annual accounts and annual percentage rate (APR)

Annual accounts are financial statements of a company announced annually in order to comply with statutory obligation. They contain a balance sheet, profit and loss account and if possible statement of sources and application of funds. Sole traders and partnership do not have an obligation to make annual accounts. Nevertheless, accounts are necessary if they want to agree assessments raised by the Inland Revenue for taxation purposes. Annual percentage rate (APR) is an annual equivalent rate of return on a loan or investment in which the rate of interests is payable more frequently than annually. Now the law requires to specify the APR in case the interest intervals are more usual than annual (Parker R. H., 2011).

Annual basis as an example

If a family of four want to determine the whole year budget they should count how much they spend on groceries. In order to do this they must estimate the cost of groceries of e.g. three months. The assumption in this case is that the date of estimating is April 1. The family should calcutate how much money they spent on groceries in January, February, March. They noticed that the costs were: €400 in January, €200 in February and €350. The total of that months is €950. To calculate the groceries costs of the year they should multiple the costs of three months times four (€950 * 4) to determine how much they spend on groceries in the year. In this case it will be €3800 on an annual basis (Buffett W., 2014).

Advantages of Annual Basis

Annual Basis is the practice of assessing a figure over the course of the year, and there are many advantages associated with this approach. The following are some of the key benefits:

• The most significant benefit of an annual basis is that it provides a more accurate picture of an individual or a company's performance. By examining figures over the course of the year, rather than on a month-by-month basis, a more detailed understanding of the overall success or failure of a given venture can be obtained.
• It also allows for more efficient decision-making. By taking a look at the entire year's performance, it is easier to make decisions and to identify trends that may have gone unnoticed on a month-by-month basis.
• Finally, it can provide a longer-term view of a company or an individual's success. For example, an individual's performance may be lower in the first half of the year, but may be higher in the second half, resulting in an overall positive performance for the year. This can be difficult to identify using a month-by-month approach.

Limitations of Annual Basis

Annual Basis has many different collocations and meanings. In every usage, it assigns an observed figure over the course of the year. However, there are several limitations to using Annual Basis for analysis. These include:

• Not accounting for seasonal fluctuations which can distort the data - for instance, sales may spike in December due to holiday season, which can lead to skewed results if analyzed on an annual basis.
• It can be difficult to identify trends in volatile markets, as it takes a longer period of time to observe changes in the data.
• It can be difficult to measure progress on a yearly basis, as some changes may take longer to materialize.
• It can be difficult to make accurate predictions based on annual data, as external factors may have an impact on the results.
• It can be difficult to accurately compare data collected on an annual basis, as there may be discrepancies in the time frames used.

Other approaches related to Annual Basis

Here are some other approaches related to Annual Basis:

• Year-on-year (YoY) Analysis - This is a comparison of current performance to the performance of the same period from the previous year. It is a good way to measure changes in an organization's performance over time.
• Budget vs. Actual Analysis - This comparison compares the budgeted amounts for a given period to the actual results, allowing organizations to identify variances and make any necessary adjustments.
• Seasonality Analysis - This type of analysis examines seasonal trends in a company's performance to assess whether certain periods are more profitable than others.
• Trend Analysis - This type of analysis looks at changes over time in a company's sales, profits, and other performance metrics to identify potential changes in the underlying business.

In summary, Annual Basis can be used in conjunction with other approaches such as YoY, Budget vs. Actual, Seasonality, and Trend Analysis to gain a better understanding of an organization's performance over time.

Annual Basis — recommended articles

Book profit — Comparative statements — Account Analysis — Earnings Multiplier — Fully Diluted Shares — Time period concept — Economic value of equity — Common-size financial statement — Exceptional Item

References

• Bangs D. H., (2010), A crash course on financial statements for small business owners, Entrepreneur Media Inc., United States of America
• Buffett W., (2014), Accounting Book: Reading Financial Statements for Value Investing,
• Cambridge Business English Dictionary, (2011),Cambridge University Press, p. 26
• Dictionary of Accounting, (2011), Oxford University Press, p. 22
• Gaffikin M., Aitken M., (2014), The Development of Accounting Theory (RLE Accounting), Significant Contributors to Accounting Thought in the 20th Century
• Hall J. A., (2013), Accounting Information System, South-Western CENGAGE Learning

Author: Kamila Nosalska, Małgorzata Maziarz, Paulina Korpała