A baseline is a benchmark that is used as a foundation for measuring or comparing current and past values. For example, a company wanting to measure the success of one of its product lines can use the number of units sold during the first year as a baseline from which to evaluate subsequent sales growth. The baseline can be considered the starting point against which all future values are measured.
A baseline is any form of measurement that’s used for comparison and analysis. It is a clearly defined starting point from where a new strategy is implemented, an existing improvement is judged or a comparison between two periods is made. If a public company wants to analyze its profits, for example, it will choose one year’s profits as a baseline and judge all subsequent years against the baseline, analyzing potential reasons behind the positive or negative change.
A baseline is specifically used in situations where a person or company is conducting financial statement or budget analysis. Financial statements analysis uses ratios or accounting numbers as the baseline for financial performance. Budget analysis uses existing revenues and spending as the baseline for assessing whether or not the project being budgeted is implemented successfully.