How to Calculate the Growth Rate
Growth rate is an essential metric to measure the expansion or decline of various aspects of business, investments, population, and economies. It represents the percentage change in a specific variable over a certain period. This article will guide you through the process of calculating the growth rate.
Follow these simple steps to calculate the growth rate:
1. Identify the initial and final values: Determine the starting value (initial value) and ending value (final value) of the variable for which you want to compute the growth rate.
2. Subtract the initial value from the final value: Calculate the absolute change in the variable by subtracting the initial value from the final value.
Absolute Change = Final Value – Initial Value
3. Divide by the initial value: To get a proportionate change, divide the absolute change by the initial value.
Proportionate Change = Absolute Change / Initial Value
4. Multiply by 100 to get a percentage: To express the growth rate as a percentage, multiply the proportionate change by 100.
Growth Rate (%) = Proportionate Change × 100
Now let’s look at an example to help solidify understanding:
Suppose we want to calculate the annual revenue growth rate of a company between 2019 and 2020. The 2019 revenue was $5 million, and in 2020 it jumped to $6 million.
1. Identify initial and final values:
Initial Value (2019 Revenue) = $5 million
Final Value (2020 Revenue) = $6 million
2. Subtract initial value from final value:
Absolute Change = $6 million – $5 million
Absolute Change = $1 million
3. Divide by initial value:
ProportionateChange = ($1 million) / ($5 million)
Proportionate Change = 0.20
4. Multiply by 100 for a percentage:
Growth Rate (%) = 0.20 × 100
Growth Rate (%) = 20%
The annual revenue growth rate of the company from 2019 to 2020 is 20%.
In conclusion, calculating the growth rate is a straightforward process that can provide valuable insights into trends, helping make informed decisions in various domains. Whether you’re assessing investments or preparing business forecasts, understanding the step-by-step calculation of the growth rate can greatly benefit your analysis.