For many, reading the phrase "Calculating the rate of growth" can bring to mind a very complex and intimidating mathematical process. In reality, calculating the growth rate is a very simple operation. The base growth rate is simply given by the difference between two values over time and is expressed as a percentage of the first data taken into consideration. Below you will find the simple instructions needed to perform the calculation, as well as some detailed information on the more complex processes for measuring growth.
Steps
Part 1 of 2: Calculating the Base Growth Rate
Step 1. Obtain data that shows the variation over time of a certain quantity
All you need to do the basic growth rate calculation are two numbers. The first represents the initial value of the entity in question, while the second represents the final value. For example, if your company was worth € 1000 at the beginning of the month and today it is worth 1200, you can calculate the growth rate by setting € 1000 as the initial value (ie the "past") and € 1200 as the final value (ie the " here I'm"). Let's consider an example problem. In our case we use the following two numbers 205 (our past value) and 310 (our present value).
If the two values are identical it means that there has been no growth, therefore the growth rate is 0
Step 2. Apply the formula to calculate the growth rate
Simply enter your past and present values inside the following formula: (Present) - (Past) / (Past). As a solution to your problem you will get a fraction, perform the calculation to get the decimal value.
In our example we will use 310 as the present value and 205 as the past value. The formula will look like this: (310 - 205)/205 = 105/205 = 0, 51.
Step 3. Express the decimal value obtained as a percentage
Most growth rates are expressed as a percentage. To convert a decimal number to a percentage, simply multiply it by 100 and add the "%" symbol. Percentages are a simple and universally accepted tool for expressing the variation between two values.
- So in our example, we need to multiply 0.51 by 100 and then add the% symbol. 0.51 x 100 = 51%.
- The solution we found indicates a 51% growth rate. In other words, our present value is 51% greater than our past value. If the present value were smaller than the past one we would have calculated a negative growth rate.
Part 2 of 2: Calculating the Average Growth Rate over a Regular Time Span
Step 1. Organize your data in tabular form
It is not an absolutely necessary step, but it is very useful, as it allows you to view your data as a set of values related to time. For our purposes, a simple table consisting of two columns is sufficient: in one column (the one on the left) it lists the values corresponding to the time interval object of our study and in the other (the one on the right) the respective values of the entity we are analyzing. In the image you can see our example table.
Step 2. Use the growth rate calculation equation that looks at the time frame your data is tied to
Each of your data is associated with a time interval value that should go smoothly. The unit of measurement of the values that make up the time interval are not important; this method works for any time interval, be it in minutes, seconds, days, etc. In our case, the time interval in question is expressed in years. Enter the past and present values in the following new formula: (present) = (past) * (1 + growth rate) where is it n = number of years.
This method gives us a constant average growth rate, for each value of the time interval between the given past and present values. Since our example uses a time span expressed in years, we will get an average annual growth rate
Step 3. Isolate the "growth rate" variable
Edit the given equation to get the "growth rate" as one of the members of the formula. To do this, divide both sides of the equation by the past value, transform the exponent of the power into 1 / n, then subtract 1.
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If your algebraic calculations are correct you should have obtained the following formula: growth rate = (present / past)1 / no - 1.
Calculate Growth Rate Step 7 Step 4. Perform the calculation using your data
Enter your values for the past and present variables, as well as the value of n (which corresponds to the number of values that make up your time range including the past and present extremes). Perform the calculation respecting the principles of algebra, the order in which the mathematical operations must be performed, etc.
- In our example, the present value is equal to 310, while the past value is equal to 205, and our time interval is 10 years, which is the value of n. In this case, the average annual growth rate is equal to (310/205)1/10 - 1 =, 0422
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0.422 x 100 = 4.22%.
On average, our growth rate is 4.22% per year.
Advice
- The same formula is used for both numbers increasing and decreasing. In the event of a decrease it will be a reduction in growth.
- The whole formula is as follows: ((Present - Past) / Past) * 100
