Low base effect explained

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

Notes and References

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. .